Maritime Liens for Damage to Property Take Priority Over Registered Mortgages Under the Admiralty Act, 2017.

The Applicant/Plaintiff, a decree holder based on a registered mortgage on the vessel MT Prem Mala, sought a determination of priorities and the release of sale proceeds currently deposited with the High Court

The vessel, owned by Defendant No. 2 (undergoing CIRP), was arrested on January 31, 2020, and sold via court order on May 26, 2020

Respondent No. 7 (IOCL) filed a competing admiralty suit on September 15, 2020, claiming damages under the law of tort for physical harm caused by the vessel to its jetty during oil discharge

The Applicant contended that as a registered mortgagee of an insolvent Indian shipowner, it held absolute priority under Section 52 of the Merchant Shipping Act, 1958, and that IOCL’s claim did not constitute a maritime lien or had been extinguished upon the vessel's sale

1. Whether the priority of claims against a vessel or its sale proceeds is governed by Section 52 of the Merchant Shipping Act, 1958, or Section 10 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017

2. Whether a maritime lien is extinguished against the sale proceeds of a vessel under Section 9(2) of the Admiralty Act if the suit is filed after the sale but within the statutory limitation period

3. Whether the determination of priorities can be finalized while a competing claim asserting a higher-ranking maritime lien is still pending adjudication

The court primarily applied Section 10 of the Admiralty Act, 2017, which provides the statutory order of priority, ranking maritime liens [Sec 9] above registered mortgages

It relied on the principle from Raj Shipping Agencies v. Barge Madhwa that an action in rem continues against the sale proceeds of a vessel, and the sale proceeds represent the ship for the purpose of satisfying liens

The court also applied Section 9(1)(e) of the Admiralty Act, which classifies claims for damage caused by the operation of a vessel as maritime liens

Conversely, it clarified that Section 52 of the Merchant Shipping Act, 1958, protects a mortgagee's rights during insolvency but does not override the specific priority rankings established under the specialized Admiralty Act

The Court rejected the Applicant's argument that the Merchant Shipping Act is a "special law" prevailing over the Admiralty Act; rather, the Admiralty Act is the specific, subsequent legislation governing maritime claims and priorities

The Court observed that while the Applicant holds a decree as a mortgagee (ranked second under Section 10), IOCL’s claim for jetty damage potentially constitutes a maritime lien under Section 9(1)(e) (ranked first)

Regarding the extinguishment of the lien, the Court held that since IOCL filed its suit within one year of the cause of action and after the court-ordered sale, the lien attached to the sale proceeds in accordance with Section 9(2)

The Court reasoned that determines of priority is a substantive stage that cannot be finalized until the nature of IOCL's claim—whether it is indeed a maritime lien arising from the "operation of the vessel"—is proved at trial

Consequently, releasing the funds now would be premature and would prejudice the statutory rights of a potential superior lien-holder

The Court held that the Admiralty Act, 2017 uniquely governs the hierarchy of maritime claims and that a maritime lien properly asserted against sale proceeds maintains its statutory priority over a registered mortgage

The Applicant is granted liberty to apply for priority determination and release of funds after the conclusion of IOCL’s suit or within that proceeding