Author: Adv. Kavita Srivastav Sharan
First Published by:-IP LINK AISA

In a recent Judgment High Court, Bombay declared INTERNATIONAL SOCIETY FOR KRISHNA CONSCIOUSNESS (ISKCON) as well known Trademark in India. In the year 1966 Late Acharya, His Divine Grace A. C. Bhaktivedanta Swami Parabhupada started the Krishna Consciousness Movement in New York, USA in the name and style of “INTERNATIONAL SOCIETY FOR KRISHNA CONSCIOUSNESS” (commonly known by the acronym ISKCON).

ISKCON filed a suit before the Hon’ble High Court, Bombay seeking permanent injunction against ISKCON Apparel Private Limited for infringing its trademark ISKCON and sought a declaration that the trade mark ISKCON is a well-known trademark in India.

ISKCON submitted that that the acronym ISKCON was derived and/or adopted from its own name i.e. I from International, S from Society, K from Krishna and CON from consciousness. It submitted that there are more than 600 ISKCON temples, 65 Eco farm communities, 110 vegetarian restaurants and centres all over the world including in India. It was submitted that the mark ISKCON has been regularly openly, continuously, uninterruptedly and extensively using the mark ISKCON in respect of the various goods and services since at least the year 1971. It also owns the domain name and/or website www.iskcon.org which is operational since the year 1994 and has secured registrations of various other domain names. It further submitted that ISKCON is no longer restricted to any particular goods/ services/ activities but pertains to a diverse range of category and enjoys a personality that is beyond the scope of mere products/ services rendered under the trademark ISKCON.

The Court observed that the word ISKCON is a coined trademark that is to say that the same does not exist prior to its adoption and use by the Plaintiff and is associated exclusively with them and it deserves the highest degree of protection. On the basis of the material placed on record, the Court opined that the Plaintiff’s trademark ISKCON satisfies the requirement and test of a well-known trademark as contained in Section 11(6), 11(7) and other provisions of the Trademark Act, 1999 and declared ISKCON as a “well-known” trademark in India within the meaning provided in section 2(1)(z)(g) of the Trademarks Act 1999.

By Adv. Gaurav Srivastav, Bombay High Court

1. Mandatory sentences and minimum mandatory sentences as punishment in law has been commonly prescribed by the legislatures worldwide. However, recently the judiciary across the world have developed a tread towards its Constitutional commitment of proportionality in punishment with the actual crime committed. The Apex Courts of several countries such as Cananda, USA, Australian, South Africa and also the European Court have struck down mandatory life imprisonment and/or minimum mandatory sentences. Canadian Courts have actively struck down minimum mandatory sentence and recently a 9 Judges bench in R. v. Safarzadeh_Markhali, 2016 SCC 14, reiterated its Constitutional commitment for proportionality in sentences. The Supreme Court of United States which had actively struck down mandatory death sentence since early 20th Century have recently in Miller v. Alabama, 132 S.Ct. 2455 (2012) by 5:4 judges ratio struck down imposition of mandatory life sentence for juveniles for being violative of the Eight Amendment. Similarly, the European Court have on several occasions struck down mandatory life imprisonment by applying the “grossly disproportionate test,” few recent cases are Harkins and Edwards v. United Kindom , 2012 ECHR 45 and Murray v, Netherlands, 2016 ECHR 408. Even in Australia, which does not have a Bill of Rights or Constitution, like Canada, USA or India, has struck down minimum mandatory punishment for infringing the principle of separation of power; a recent example can be found in Magamiing v. The Queen, (2013) 253 CLR 381.

2. This Article explore the constitutional validity of the pre and post constitutional Statues in India which provides for Mandatory sentences and minimum mandatory sentences and power of the Judiciary to award punishments dehors the Statutes. This can be broadly explored by attempting to explore the following issues:
(i) Does mandatory sentences and/or minimum mandatory sentences for an offence infringes the principle of Separation of Power embodied in the Constitution of India?
(ii) Can mandatory sentences and/or minimum mandatory sentences for an offence be said to grossly disproportionate to the actual crime committed if it will be cruel, unusual or excessive and / or if such punishment will not serve any penological purpose and thus violative of Article 14 & 21 of the Constitution of India.
(iii) Can an alternative punishment or a minimum mandatory punishment for a particular offence also be unconstitutional for being grossly disproportionate to the actual crime committed or for being cruel, unusual or excessive or for infringing the principle of Separation of Power?

I. Separation of Power between the Judiciary and the Legislature is one of the basic structure of the Constitution of India and any attempt by the legislature to fix a single, specific and mandatory punishment will be per say arbitrary

3. Apart from the crime, the accused and the angle of the crime from the point of view of the accused and other mitigating factors are an important aspect while deciding the period of sentence. Few examples of such relevant factors relating to the accused can be his (a) prior criminal record, (b) his age, (c) the actual crime committed, (d) educational background, (e) human life, (f) sobriety & social adjustments, (g) emotional and mental condition, (h) prospect of his returning to the normal patch in conformity with the law while deciding the quantum of sentence. (i) blameworthiness of the offender; (j) the harm caused by the crime (k) the degree of guilt of the accused and its relation with the length of imprisonment (l) the personality characteristics of the offender, (m) the peculiar circumstances of the case, (n) the conduct of the accused in those circumstances (o) the intention or lack of intention to commit the crime. It is the duty of the Court to balance these factors along with other mitigating factors and award an appropriate sentence. However, if no discretion is given to the Courts, the Courts will have no option other than to completely ignore these factors.

4. Thus it can be argued that it is impossible for the legislature to think of or prescribe an exact punishment or take into account various factors of the crime, the specific facts of the accused, interest of society at large quo the specifications of a given case, and other relevant factors which cannot be put in any straitjacket formula;

5. Thus when the legislature only fixes one punishment which is mandatory in nature then these aspects would be completely ignored by the legislature and a single, specific and mandatory punishment of life imprisonment without any alternative punishment, which is prescribed solely at the will of the legislature, who does not have the adequate determining principles to determine as to what would be a proportionate sentence in the fact of a given case;

6. Moreover, a single, specific and mandatory punishment does not even provide an appropriate structure or yardstick of punishment by prescribing a minimum and maximum period of imprisonment, giving the Judiciary some room of discretion to determine the appropriate sentence after judicially examining all aspects and factors relating to the crime and the accused.

7. The Legislation has traditionally in all the provisions of the Indian Penal Code as well as any other Penal Statutes have provided a structure of punishment to run in between the minimum and maximum period of imprisonment as it deemed that only the Judiciary is fit to take into consideration every relevant factors, mitigating or aggregating, relating to a given case and pass a proportionate sentence within that parameters. Even for the most heinous crimes, the Parliament has in all statutes provided alternative punishments.

8. It is the judiciary which is the only institution who is fully and appropriately equipped with the necessary knowledge of law, experience and infrastructure to study the details of each case based on the legally acceptable material evidence and after applying the legal principles and guidelines of exercise of discretion from judiciary pronouncements. More so when the judiciary has not even given an alternative option which it may award taking into account such mitigating factors.

9. It has been reiterated in a series of judgements by the Supreme Court, that the Court has to award a punishment which is proportionate to the crime committed. The Code of Criminal Procedure specifically provides for wide discretionary powers to the judge once the conviction is determined in S.235, S.248, S.325, S.360 and S.361. It is for this reasons that a fix set of sentencing guidelines is not yet a part of Indian criminal jurisprudence and exercise of judicial discretion within the guidelines evolved by judicial precedents has been the traditional criminal system in Indian and sentencing proportionate sentences has essentially been a function of the judiciary, which has a direct link with the public confidence in the judicial system.

10. Any law depriving the judiciary from its discretion in awarding a proportionate sentence and mandating it to pass an award as required by the legislature is equal to passing a decision without any reasons, without hearing the aggrieved party or any other violation of the fundamental principles of judicial process. This by itself will be in the teeth of Article 14 of the Constitution of India.

11. It can thus certainly be stated that the Judiciary is the only Organ of the State which should determine the sentences and if the power of the Court to award lesser punishment is take away by the Legislature then it will infringe the principle of separation of power which form a basic structure of the Constitution of India.

12. Mandatory sentences and/or minimum mandatory sentences can be said to grossly disproportionate to the actual crime committed if it will be cruel, unusual or excessive and / or if such punishment will not serve any penological purpose and thus violative of Article 14 & 21 of the Constitution of India.

13. Article 21 of the Constitution of India has been interpreted by various judgments of the Supreme Court to incorporate the Eighth Amendment (1791) to the Constitution of the United States, which was virtually incorporated from the English Bill of Rights (1689). The Eighth Amendment which has been now read into as being a part of Article 21 of the Indian Constitution reads as follows:-
”Excessive Bail shall not be required nor excessive fines imposed, nor cruel and unusual or excessive.”

14. In other words, the Eighth Amendment provided that no person shall be subjected to a punishment which is grossly disproportionate to the actual crime committed nor shall it be subjected to any punishment which can be recorded as cruel or unusual or excessive.

15. The 8th amendment though may not require the Court apply strict proportionality between the crime and the sentence in every case but only for cases where the sentence prescribed seems grossly disproportionate;

16. This principle that the punishment should be proportionate to the offence is recognized as a fundamental principle in jurisdictions worldwide and the Court in every jurisdiction have held that this principle of proportionality is applicable to sentence of imprisonment as much as it applies to capital sentence. Therefore, even a single day in prison may be held to be disproportionate in certain circumstances ;

17. Whether a sentence of imprisonment is a disproportionate to the offence allegedly committed by the Accused the Court must look into (a) gravity and magnitude of the offence and the harshness of the punishment, (b) the sentence imposed on other criminals in the same jurisdiction, (c) the sentences imposed for commission of the same crime in other jurisdictions, (d) whether similar crimes are subjected to same or lesser penalties (d) whether there is a legitimate aim or compelling reason for such a drastic measure, (e) whether such a drastic measure is suitable to achieve the aim, (f) what is the decree of evidence which is required to achieve such a drastic measure, (g) whether there can be any less onerous way of achieving the legitimate aim or whether the drastic measure is the only way to achieve the aim, (h) whether such a drastic measure is reasonably considers the competing interest of different groups, (i) blameworthiness of the offender; (j) the harm caused by the crime (k) the degree of guilt of the accused and its relation with the length of imprisonment (l) the personality characteristics of the offender, (m) the peculiar circumstances of the case, (n) the conduct of the accused in those circumstances (o) comparison of the said conduct with other offenders (p) the intention or lack of intention to commit the crime (q) whether a particular offender deserves to be rehabilitated or (r) whether the public needs to be protected from a particular offender.

18. Similarly, if no penological purpose is served by the punishment or the penological purpose of the punishment can effectively achieved with a lesser punishment i.e. a lesser period of imprisonment then it clearly establishes disproportionality. Deterrence, Retributive, Incapacitation, Reformative/rehabilitative theory and/or absolute deterrence or utilitarian theory are the relevant penological theories.

19. The Constitution bench in Mithu V/s State of Punjab, (1983) 2 SCC 277 has struck down a similar provision which prescribed mandatory death penalty without any alternative whatsoever for being violative of Article 14 and 21 of the Constitution of India. Similarly, The Hon’ble Supreme Court of India in the matter of Dadu V/s. State of Maharashtra, (2000) 8 SCC 437 and State of Punjab V/s. Dalbir Singh, (2012) 3 SCC 346 have struck down similar provisions which denied judicial discretion in awarding sentences.

20. The Hon’ble Supreme Court in the matter of Sharaya Bano V/s Union of India reported in (2007) 9 SCC 1 while considering Mithu’s case (supra) held that in Mithu’s case, the provision prescribing mandatory death sentence was not only struck down on the ground of violating Article 21 of the Constitution of India but was also struck down on the ground of it being manifestly arbitrarily and violative of Article 14 of the Constitution of India.

21. Whether alternative punishment or a minimum mandatory punishment for a particular offence can be unconstitutional for being grossly disproportionate to the actual crime committed or for being cruel, unusual or excessive or for infringing the principle of Separation of Power?

22. The real controversy arises when the legislature has provided an alternative mandatory punishment for example life imprisonment in alternative to death sentence and/or when legislature has provided a structure of punishment to run in between the minimum and maximum period of imprisonment.

23. Thus whether the Judiciary is compelled to sentence the minimum mandatory punishment i.e. either mandatory life imprisonment, which is in alternative to death sentence or the mandatory specified number of years of imprisonment, which is the minimum punishment for a particular offence if even the Judiciary does not want to?

24. When the legislature prescribes such minimum / alternative mandatory sentence, by literal interpretation, the Judiciary will be compelled to award the only alternative punishment or the minimum punishment prescribed by the legislature even when after considering various factors, which were not available to the legislature, the Court in its discretion would have preferred a lesser sentence. In other words, does the Judiciary stands completed deprived of its discretion if an alternative or minimum mandatory punishment is prescribed by the Legislature ?

25. The Supreme Court in Vikram Singh v. Union of India, (2015) 9 SCC 502 while considering challenge to the award of death sentence for an offence under Section 364-A IPC, considered various decisions on the issue of punishment. It considered some American decisions holding that fixing of prison terms for specific crimes involves a substantive penological judgment which is properly within the province of legislatures and not courts and that the responsibility for making fundamental choices and implementing them lies with the legislature and conduced as under:
“52.2. Prescribing punishments is the function of the legislature and not the courts.

52.3. The legislature is presumed to be supremely wise and aware of the needs of the people and the measures that are necessary to meet those needs.

52.4. Court show deference to the legislative will and wisdom and are slow in upsetting the enacted provisions dealing with the quantum of punishment prescribed for different offences.”

26. The case of Vikram Singh, (2015) 9 SCC 502 was recently considered by the Constitution Bench in Union of India v. V. Sriharan, (2016) 7 SCC 1 in the descending opinion of Lalit J & Sapare J. The relevant portions are reproduced as below:
50. Having thus noted the relevant provisions in the Constitution, the Penal Code, the Criminal Procedure Code and the DSPE Act, we wish to deal with the questions referred for our consideration in seriatim. The first question framed for the consideration of the Constitution Bench reads as under: (V. Sriharan case [Union of India v. V. Sriharan, (2014) 11 SCC 1 : (2014) 3 SCC (Cri) 1] , SCC p. 19, para 52)
52.1. Whether imprisonment for life in terms of Section 53 read with Section 45 of the Penal Code meant imprisonment for rest of the life of the prisoner or a convict undergoing life imprisonment has a right to claim remission and whether as per the principles enunciated in paras 91 to 93 of Swamy Shraddananda (2) , a special category of sentence may be made for the very few cases where the death penalty might be substituted by the punishment of imprisonment for life or imprisonment for a term in excess of fourteen years and to put that category beyond application of remission?

27. The Minorty held as under:
“273. Section 302 IPC prescribes two punishments, the maxima being the death sentence and the minima to be life sentence. Shraddananda (2) [Swamy Shraddananda (2) v. State of Karnataka, (2008) 13 SCC 767 : (2009) 3 SCC (Cri) 113] proceeds on the footing that the Court may in certain cases take recourse to the expanded option, namely, the hiatus between imprisonment for 14 years and the death sentence, if the facts of the case so justify. The hiatus thus contemplated is between the minima i.e. 14 years and the maxima being the death sentence. In fact going by the punishment prescribed in the statute there is no such hiatus between the life imprisonment and the death sentence. There is nothing that can stand in between these two punishments as life imprisonment, going by the law laid down in Godse case [Gopal Vinayak Godse v. State of Maharashtra, AIR 1961 SC 600 : (1961) 1 Cri LJ 736 : (1961) 3 SCR 440] is till the end of one’s life. What Shraddananda (2) [Swamy Shraddananda (2) v. State of Karnataka, (2008) 13 SCC 767 : (2009) 3 SCC (Cri) 113] has done is to go by the practical experience of the life imprisonment getting reduced to imprisonment for a period of not more than 14 years and assess that level to be the minima and then consider a hiatus between that level and the death sentence. In our view this assumption is not correct. What happens on the practical front cannot be made basis for creating a sentence by the courts. That part belongs specifically to the legislature. If the experience in practice shows that remissions are granted in unsound manner, the matter can be corrected in exercise of judicial review. In any case in the light of our discussion in answer to the question in para 52.6, in cases of remissions under Sections 432/433 CrPC an approach will necessarily have to be made to the Court, which will afford sufficient check and balance.”
“277.Shraddananda (2) [Swamy Shraddananda (2) v. State of Karnataka, (2008) 13 SCC 767 : (2009) 3 SCC (Cri) 113] does not proceed on the ground that upon interpretation of the provision concerned such as Section 302 IPC, such punishment is available for the Court to impose. If that be so it would be available to even the first court i.e. Sessions Court to impose such sentence and put the matter beyond any remissions. In a given case the matter would not go before the superior court and it is possible that there may not be any further assessment by the superior court. If on the other hand, one were to say that the power could be traceable to the power of confirmation in a death sentence which is available to the High Court under Chapter XXVIII CrPC, even the High Court while considering death reference could pass only such sentence as is available in law. Could the power then be traced to Article 142 of the Constitution?”

“280. Further, in theory it is possible to say that even in cases where court were to find that the offence belonged to the category of the “rarest of rare” and deserved death penalty, such death convicts can still be granted benefit under Sections 432/433 CrPC. In fact, Section 433-A contemplates such a situation. On the other hand, if the court were to find that the case did not belong to the “rarest of rare” category and were to put the matter beyond any remissions, the prisoner in the latter category would stand being denied the benefit which even the prisoner of the level of a death convict could possibly be granted under Sections 432/433 CrPC. The one who in the opinion of the court deserved death sentence can thus get the benefit but the one whose case fell short to meet the criteria of the “rarest of rare” and the court was hesitant to grant death sentence, would languish in jail for the entirety of his life, without any remission. If absolute “irrevocability of death sentence” weighs with the court in not awarding death sentence, can the life imprisonment ordered in the alternative be so directed that the prospects of remissions on any count stand revoked for such prisoner. In our view, it cannot be so ordered.”

28. However, the majority opinion of the Constitutional Bench held as under:
“178. We hold that the ratio laid down in Swamy Shraddananda (2) [Swamy Shraddananda (2) v. State of Karnataka, (2008) 13 SCC 767 : (2009) 3 SCC (Cri) 113] that a special category of sentence; instead of death can be substituted by the punishment of imprisonment for life or for a term exceeding 14 years and put that category beyond application of remission is well founded and we answer the said question in the affirmative.”

29. This article does advocates that if a special category of punishment can be created to put the put the punishment of imprisonment for life or for a term exceeding 14 years beyond application of remission then similarly the Judiciary can create a special category of punishment below the minimum mandatory punishment be it a specific number of imprisonment or life imprisonment as alternative to death sentence for the reasons stated below.

30. A legislation which compels the judiciary to implement any government or legislative policy or determination by confining the court’s adjudicative process without following the ordinary judicial process deprives the judiciary of its independent and impartial character. This effectively amounts to letting members of the executive or the parliament to determine the quantum of sentence for particular offenders.

31. The principle of separation of power as applied to the criminal justice system serves the purpose of reducing this risk of arbitrary exercise of power by any arm of the government including the legislature. The legislature enacts laws relating to crime and provide guidelines for appropriate sentences for persons who commit such crimes. The executive enforces these laws and it is the judiciary that determines whether or not a person is guilty, whether the persons has been accorded procedural fairness, and what punishment the offender should receive for committing the crime.

32. Exercising power to sentence a person in confinement for his or her entire life is the highest form of power in existence and it must be only exercised when justified according to the traditional criminal system i.e. by the judiciary after reviewing the details of each case based on the legally acceptable material evidence and after applying the legal principles and guidelines of exercise of discretion from judiciary pronouncements.

33. It can thus certainly be stated that the Judiciary is the only Organ of the State which should determine the sentences and if the power of the Court to award lesser punishment is take away by the Legislature then it will infringe the principle of separation of power which form a basic structure of the Constitution of India.

34. This issue after the decision of Vikram Singh, (2015) 9 SCC 502 was no longer res integra, where the Supreme Court answered the same in Negative. However, after the decision of the Constitution Court in Union of India v. V. Sriharan, (2016) 7 SCC 1 the issue has possibly reopened and infact the Supreme Court has held that the Judiciary can create a different category of punishment de hors the statute.

Insolvency law prevails over Admiralty law: A compromised solution to save maritime claims.
By Gaurav Srivastav, S.k. Srivastav & Co (India)

Introduction:

1. The Bombay High Court passed a judgment, Raj Shipping Agencies v. Barge Madhwa, 2020 SCC OnLine Bom 651 on 19/5/2020, when it was called upon to answer two issues one of which was “[i]s there a conflict between actions in rem filed under the Admiralty Act and IBC and if so, how is the conflict to be resolved?”
2. The Court held that in the event there is any conflict between the Insolvency and Bankruptcy Code, 2016 (“IBC”) & the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (“the Admiralty Act”) the former will prevail since it contains a non-obstanste clause and the later does not. However, after revisiting the well settled principles of Admiralty law & the provision of IBC code the Court observed reconciliation of both the Acts is possible and there is little conflict between The court held that a declaration of moratorium under the IBC will not prohibit the institution of an action in rem or continuation of a pending action in rem as an arrest of the ship would not amount to Institution of a suit against a corporate debtor as defined under the IBC as it is a ship against whom the proceedings are against and not the owner of the ship or its assets.

Contextual Background:
3. While faced with arguments that Admiralty Courts are powerless to take steps to protect the ships and ensure realization of maximum value during Moratorium, the Court observed Instances where the insolvent owners abandon their ships and the Resolution Professional (“RP”), ignores his duty under the IBC to man, preserve and maintain the ships during the Corporate Insolvency Resolution Plan (“CIRP”); leaving crew members stranded without adequate food, drinking water and essential fuel for survival on board. The Court also observed that the committee of creditors (“COC”) on one hand opposes the sale of the Ship by the Admiralty Court but on the other hand does not spend any money in protecting their own mortgaged ships and ultimately sell the ship at scrap value. The Court held that in these situations the Admiralty Court must have the discretion to step in and protect not only the ship but also the rights of crew members who continue to remain on board in order to maintain, preserve and ensure safety of the ships as exercising Admiralty jurisdiction in such cases will be beneficial and assist rather than hinder insolvency resolution. It would protect the ship and in turn the security of a mortgagee who is a financial creditor. At the same time this would also indicate to the mortgagee that they must take steps to protect and preserve their security and if they do not then the Admiralty Court will step in.

The Solution:
4. The Court held that a harmonious interpretation of the IBC and the Admiralty Act brings about a solution which would “serve the interests of all stakeholders under both statutes and would be consistent with the objectives of both acts and give effect to the same.”

5. Three scenarios emerged where the provisions of both statutes got involved and the Court provided elaborate solutions for the same and set out below.

6. Scenario I – If a Plaintiff has commenced Admiralty proceedings in rem and obtained an order of arrest of a ship from an Admiralty Court, subsequent to which insolvency proceedings are filed against the owner of the vessel and the adjudicating authority declares a moratorium under Section 14 of the IBC.

6.1. If security for release of the vessel has been furnished prior to the declaration of moratorium:
(i) Then the Suit will not proceed as the Suit is no longer an action in rem but in personam against the corporate debtor who has furnished security.
(ii) However, Plaintiff will be considered to be a secured creditor having obtained security exclusively for his claim.

6.2. If after furnishing security the CIRP is successful and a Resolution Plan is approved:
(i) Then the maritime claim of Plaintiff will be determined in accordance with the resolution plan approved by the COC and the adjudicating authority (“AA”) under the IBC.
(ii) Plaintiff’s status as a secured creditor and its exclusivity to the security will be considered by the COC / AA in determining the entitlement of Plaintiff and ordinarily be entitled to realise his claim to the full extent of the security provided. To this extent the Admiralty Court will protect the interest of Plaintiff and its right to the security provided to the Admiralty Court for release of the ship.

6.3. If after furnishing security the CIRP is not successful and the company is ordered to be liquidated:
(i) The Plaintiff will be a secured creditor in liquidation and will be entitled to realise its security interest in accordance with the applicable law, viz., Admiralty Act, as provided in Section 52(4) of the IBC itself.
(ii) It will be open to the Liquidator to defend the suit which right is available to him as provided in S. 35(1) (k) of the IBC.

6.4. If security has not been furnished at the time when the moratorium is declared:
(i) Then the Admiralty Court will not proceed further with the Suit in rem as it would defeat the insolvency resolution objective of the IBC.
(ii) However, the vessel will remain under arrest and it would be up to the RP to decide whether security ought to be furnished for release of the vessel. Thus the maritime claimant or his right in rem would not be prejudiced.
(iii) If no security is furnished, the vessel will remain under arrest until the end of the CIRP period.
(iv) In that event, Plaintiff’s maritime lien or claim which is a perfected claim against the vessel by virtue of the arrest, will operate as a charge on the vessel and Plaintiff will be considered as a secured creditor.

6.5. If security has not been furnished and the company is liquidated then:
(i) Plaintiff’s action being an action in rem will proceed and the vessel will be sold by way of an Admiralty sale to maximize its realisation value.
(ii) Plaintiff and any other claimant who has a maritime claim or a maritime lien and has obtained an order of arrest before liquidation, will be considered a secured creditor and will be entitled to enforce and realize his security interest in accordance with Admiralty Act.
(iii) The Admiralty Court will be entitled to invite claims against the sale proceeds by following the Admiralty procedure prescribed in the Rules.
(i) Parties having a maritime lien or a maritime claim will be entitled to file an action in rem against the sale proceeds as in law there no difference between an action in rem against a ship and against the proceeds of sale of that ship.
(ii) The determination of priorities will also be done in accordance with Section 10 of the Admiralty Act and inter se priorities of maritime liens will be decided in accordance with Section 9 of the said Act.
(iii) Section 53 of the IBC which refers to distribution of assets will not apply.
(iv) If the ship is sold by the Admiralty Court in exercise of its jurisdiction in rem then the machinery of the Admiralty Act will apply and the sale proceeds will be distributed on the basis of priorities determined under the Admiralty Act.
(v) All those claimants who are unable to recover their claim from the sale proceeds will have to pursue their claim in the liquidation as unsecured creditors.

6.6. If on the other hand if the company is not liquidated and Resolution Plan is approved, then:
(i) The Plaintiff’s claim together with that of all other Claimants who have obtained an order of arrest and have become secured creditors qua the ship will be determined in accordance with the approved plan.
(ii) Being secured creditors, their rights and claims in respect of the vessel under arrest shall be considered by the COC / AA whilst approving the Resolution Plan when it comes to payments to be made to them from the amounts made available to secured creditors by the successful Resolution applicant.
(iii) The claim of Plaintiff and all other maritime Claimants who have arrested the vessel before a moratorium was declared shall be accorded priority in respect of the value ascribed to the vessel in the Resolution Plan.
(iv) The vessel would have been sold by the Admiralty Court and the priorities would have been determined in accordance with the Admiralty Act. However, the ship value for the purpose of ascertaining the proportionate and priority entitlements of the maritime claimants will be the liquidation value assigned to that particular vessel.

6.7. Since the ship was arrested before the declaration of moratorium, the Admiralty Court will protect the interests of Plaintiff and release the ship from arrest only upon being satisfied that the claim of Plaintiff has been accorded priority as required under the Admiralty Act in respect of the value ascribed to the ship and paid accordingly.

6.8. All those claimants who had arrested the vessel but are unable to recover their claim under the Resolution Plan in part or in full because the value ascribed to the ship is not sufficient to pay all claims against the vessel in full, will rank as operational creditors of the corporate debtor as regards their unrecovered claim and may recover depending on what payment is offered to operational creditors in the resolution plan. They are not secured creditors of the corporate debtor’s other assets.

6.9. If security has not been furnished and the vessel remains under arrest:
(i) the Admiralty Court will not order the sale of the vessel during the moratorium period in order to allow the insolvency resolution process to fructify, unless an application for sale is made by the RP or if the vessel is not being manned, equipped and maintained by the RP during the moratorium and all charges for the same are not being paid by the RP including port charges or if the vessel becomes a navigational hazard.
(ii) In such a case the Admiralty Court will have the discretion to sell the vessel at the instance of any party who has filed an Admiralty Suit and has a maritime claim.
(iii) The order of sale is made to ensure that the value of the vessel is not put at risk and the vessel is preserved and / or is not allowed to waste and deteriorate and further encumbered with claims and liabilities during the moratorium period. This is done with a view to maximize the value of the ship (asset) and also to secure the interests of the secured creditors qua the ship in question which is also the objective of the IBC. This will be a matter entirely in the discretion of the Admiralty Court.

6.10. In all such cases notice will be given to the owner who may be represented by the RP before any sale of the ship is carried out by the Admiralty Court.

6.11. In all cases of sale of the vessel during the moratorium period in view of exigencies mentioned in the preceding paragraph, the proceeds will not be distributed but will be retained by the Admiralty Court to await the outcome of the CIRP or liquidation, as the case may be. Once either of these events happen, the procedure laid down in paragraph 6.6 & 6.8 above will apply as regards distribution of the sale proceeds and priorities.

6.12. All expenses incurred for preservation and maintenance of the vessel during the period of arrest with the permission of the admiralty Court will be treated as sheriff’s expenses in Admiralty and Resolution Process costs under the IBC and paid out in priority from the sale proceeds of the ship if the company is liquidated or be accorded priority in the resolution plan as resolution process costs.

7. Scenario II : If a moratorium has been declared under Section 14 of the IBC before any Admiralty Suit in rem is filed for enforcement of a maritime lien or maritime claim.

7.1 There will be no bar to filing such an action and If an order of arrest is made, the warrant of arrest will be executed against the vessel.

7.2 Upon the RP entering appearance on behalf of the owner/corporate debtor, the Suit will not proceed in rem so as not to defeat the objective of the insolvency resolution and the Admiralty action in rem will have to be stayed and not proceeded with after the vessel has been arrested, till such time as the insolvency resolution process is completed or a Liquidator is appointed.

7.3 If the vessel is trading during the moratorium period the vessel will be permitted to trade under arrest once the RP enters appearance on behalf of the corporate debtor and appropriate undertakings are provided in respect of the vessel. This will ensure that trading of the vessel is not impaired or affected, if this is in the interest of the corporate debtor or the CIRP.

7.4 The Claimant will be considered as a secured creditor and the observations in paragraphs 6.5, 6.6 & 6.8 above will apply if the insolvency resolution process is successful and a resolution plan is approved or if the resolution process fails and the liquidator is appointed, as the case may be.

7.5 At all stages, in such a situation it would be open to the RP acting on behalf of the owner to furnish security for release of the vessel if he deems fit. The RP, however, will be under an overriding obligation to maintain the vessel in any event and if this is not being it will be open to the Admiralty Court to consider an application for sale of the vessel at any stage during the CIRP. The sale proceeds will, however, not be distributed and will be retained by the Admiralty Court to await the outcome of the CIRP or liquidation as the case may be.

7.6 Same procedure for paying out the incurred expenses will apply as mentioned in paragraph 6.12.

8. Scenario III : If the owner of the vessel (corporate debtor) is in liquidation at the time the Plaintiff commences Admiralty proceedings in rem for arrest of the vessel.

8.1 An action in rem can be entertained even at the stage of liquidation of the corporate debtor as the claim is against the res and not against the corporate debtor.

8.2 Once a Plaintiff obtains an order of arrest, the vessel can then be sold by the Admiralty Court in order to realize maximum value as it is only a judicial sale by an Admiralty Court which extinguishes all maritime liens against the res and thereby giving a clear title to the buyer.

8.3 Once the sale proceeds are realized and deposited in Court, paragraph 6.6 above will apply and the matter will proceed on that basis. The Liquidator will be entitled to defend the suit.

8.4 This may also be seen from another perspective. Once Plaintiff obtains an order of arrest, Plaintiff would then become a secured creditor and realize the security interest in accordance the Admiralty Act.

Conclusion:
9. An action in rem can be filed and have the ship arrested before or during the moratorium period or even when in liquidation to perfect his maritime lien or maritime claim under the Admiralty Act. The action in rem will not proceed till the moratorium is in place. This will ensure that the rights under both the IBC & the Admiralty Act are not defeated. The priorities for payment out of the sale proceeds will also be determined in accordance with the said Admiralty Act.

Comment:
10. The Judgment indeed advances both fields of law and gives an elaborate rule-book in case of any interplay between both laws. The Discretion given to Admiralty Court to step in and protect the ship and the crew members is an additional judge-created remedy which come to rescue for any concerned party. The Judgment is based on well settled principles of interpretation and its unlikely to be assailed; however, possibility of minor inference & modification can’t be ruled out thus it is advisable to be updated on the issue.

The onset of COVID -19 has made it increasingly difficult for individuals as well as Companies to honour their Commercial obligations. The Question how would a pandemic such as COVID -19 affect existing Contracts. One contractual provision that comes to my mind is Force Majeure.

Force Majeure is a clause which enables a party to a Contract to append their obligation for a temporary period owing to occurrence of an unforeseen event which is outlined in the clause of the Contract; however Force Majeure has its statutory basis in section 32 of the Indian Contract Act. Through this brief I am trying to bring up to speed with regard to basics of Force Majeure during such Pandemics.

The phrase act of God refers to an unforeseen event that has arisen from natural causes, is ordinary in nature and in nature is such that it could not be controlled by human forces. Whikle drafting a Force Majeure Clause certain unforeseen events or situations are classified as Force Majeure Events . These typically include both natural and non natural such as floods, earthquakes, wars military action, government action etc and ordinarily are framed broadly wherein the phrase Act of God is also typically included as a Force Majeure Event.

DOES A PANDEMIC SUCH AS COVID -19 FALL WITHIN THE SCOPE OF ACT OF GOD

Would including the phrase Act of God protect you against such Pandemics. One way of proving that it is a Force Majeure Event is by looking at the contractual provision. If the Force Majeure clause expressly includes epidemic then under the contract you can enforce the Force Majeure Clues. If a specific reference is not given look for generic words which broaden the scope of the clause such as included but not limited to and apply the ejusdem generis rule.

If the Force Majeure clause does not include epidemic then CXONVID -19 by itself would not constitute Act of God owing to its controversy over its origin and the allegations made against China, the fact remains that epidemic of this scale could not be anticipated hence invocation of act of God may not be adequate to protect you. It is not the epidemic itself which has stalled the performance of the contract but the ensuing lockdown, hence a phrase such as Governmental action or arising out of an act of God may be relied upon as well, also generic terms such as included but not limited to would also help if the clause is broad enough to cover it.

The Finance Ministry in or around Feb 2020 issued a memorandum wherein it stated that Corona virus should be treated s natural calamity and Force Majeure should be invoked wherever appropriate , however this not a binding document and the parties to a Contract especially if one of the parties is not a Government are free to go by contractual provisions ( procurement policy division, ministry of Finance

REQUIREMENT OF NOTICE UNDER FORCE MAJEURE

A FORCE MAJEURE CLAUSE TYPICALLY ALSO HAS A NOTICE REQUIREMENT WHEREIN DEFAULTING PARTY I REQUIRED TO INTIMATE THE OTHER PARTY THAT UNFORESEEN CIRCUMSTANCES HAVE INTERRUPTED PERFORMANCE AND HENCE FORCE MAJEURE NEEDS TO BE INVOKED WITHIN A PROVIDED DURATION EVEN IF SUCH A REQUIREMENT IS NOT PROVIDED IN THE INTEREST OF JUSTICE AND TO AVOID ANY DISPUTE OF DELAY YOU SHOULD IDEALLY INFORM THE OTHER PARTY OF YOUR INTENTION TO INVOKE FORCE MAJEURE HOWEVER IF THE UNFORESEEN EVENT CONTINUES BEYOND THE MAXIMUM DURATION THEN A FORCE MAJEURE CLAUSE WOULD IDEALLY CONTAIN AN OPTION OF TERMINATION WHICH WOULD BE CO TERMINUS WITH YOUR TERMINATION CLAUSE IN THE CONTRACT.

WHAT IF THE CONTRACT DOES NOT HAVE A FORCE MAJEURE CLAUSE

If a contract does not have a Force Majeure Clause how would you face the current situation, this is where section 56 of the Indian Contract Act arises. Section 56 of the Indian Contract Act deals with contracts subsequent to entering onto which the performance becomes impossible

It states the following “Contract to do act afterwards becoming impossible or unlawful. A contract to do an Act which after the Contract is made becomes impossible or by reason of some event in lawful becomes void when the act becomes impossible or unlawful.

What would be the applicability of section 56 to make a contract void

OBJECT / PURPOSE OF CONTRACT BECOMING IMPOSSIBLE

IMPOSSIBILITY MEANS THAT THE ACT HAS BECOME SO IMPRACTICABLE NOW THAT IT HAS DEFEATED THE OBJECT OR THE PURPOSE OF THE CONTRACT ITSELF

GROUNDS FOR IMPOSSIBILITY – DESTRUCTION OF THE SUBJECT MATTER, CHANGE OF CIRCUMSTANCE. THE CONTRACT BECOMES VOID FROM THE DATE OF IMPOSSIBILITY. IF YOU ARE A BUYER AND IF YOU HAVE PAID ADVANCE PAYMENT THEN IN TERMS OF SECTION 56 YOU ARE LIABLE TO GET REFUND, HOWEVER DELAY AND IMPOSSIBILITY ARE TWO DIFFERENT THINGS. IN ORDER TO AVAIL SECTION 56 PERFORMANCE OF CONTRACT SHOULD HAVE BEEN IMPOSSIBLE. A MERE DELAY WOULD NOT CONSTITUTE IMPOSSIBILITY TO PERFORM.

UNFORSEEN EVENT WHICH THE PROMISOR COULD NOT PREVENT.

UNFORESEEN EVENT MEANS AN EVENT WHICH COULD NOT BE FORESEEN BY THE PROMISOR ON THE DATE OF MAKING THE PROMISE OF PERFORMANCE. COVID 19 WILL FALL IN THE CATEGORY OF UNFORESEEN EVENT AS IT WAS IMPOSSIBLE FOR THE PROMISOR TO FORSEE SUCH EPIDEMIC AT THE TIME OF ENTERING INTO THE CONTRACT LET ALONE FORSEE THE CONSEQUENCES OF THE EPIDEMIC ON THE CONTRACT AND SUCH AN EVENT COULD NOT HAVE BEEN PREVENTED BY THE PROMISOR HOWEVER IF THE OTHER PARTY IS ABLE TO SHOW THAT THE PROMISOR COULD HAVE PREVENTED THE CONSEQUENCE OF THE UNFORESEEN EVENT , THE LEGAL CONSEQUENCE WOULD BE DIFFERENT.

REMEDIES AVAILABLE

IF YOU ARE THE DEFAULTING PARTY WHO COULD NOT PERFORM THE CONTRACT OWNING TO THE EPIDEMIC

EITHER INVOKE FORCE MAJEURE CLAUSE

ARGUE FOR FRUSTRATION OF THE CONTRACT

NEGOTIATE FOR EXTENSION OF TIME

AVAILABLE REMEDIES FOR NON DEFAULTING PARTY

IF TIME IS OF THE ESSENCE OF THE CONTRACT AND THE DEFAULTING PARTY HAS NOT HONORED THE SAME NEITHER INVOKED FORCE MAJEURE CLAUSE YOU MAY SUE THE DEFAULTING PARTY FOR BREACH.

Tasneem Saria, Sr. Associate
Advocates & Solicitors
Tel: (022) 2267 4729
Email: sks@srivastavandco.com
Web: www.srivastavandco.com / .in