Entitlement To Intervene In Admiralty Suit Cannot Be Adjudged Only On The Basis Of The Nature Of Possible Defences Which Proposed Intervener May Take: Bombay HC

The Bombay High Court, in a commercial admiralty suit, has observed that the entitlement to intervene in an admiralty suit cannot be adjudged only on the basis of the nature of the possible defences which the proposed intervener may take.

Thhe Court said that the true test to be applied is, to assess whether the party claiming intervention has any ‘interest’ in the vessel or the sale proceeds.

In that context, the Bench of Justice NJ Jamadar observed that, "in the face of an express provision in the Rules, if viewed in the context of the nature of the action in rem, where the vessel is sold and the sale proceeds are held for the benefit of all the creditors (of course subject to priority), 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."

Kroll Trustee Services Ltd. pursued a claim against the defendant-vessel 'M. V. AEON', owned by Samnium Maritime Limited. In 2017, a Term Loan Facility agreement was established between two lenders and three borrowers, including Samnium, with US$ 34,025,000 disbursed in two advances. Samnium executed two mortgage deeds on the vessel in favor of Wilmington Trust as a Security and Facility Agent, which were later transferred to Kroll when they replaced Wilmington as the agent.

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

Global Radiance Ltd. and Termoil Ltd. filed interim applications to intervene in the suit, claiming they had arranged supplies to the vessel and thus had a maritime claim under Section 4(1)(l) of the Admiralty Act, 2017.

The Court stated that the true test is to assess whether the party claiming intervention has any 'interest' in the vessel or the sale proceeds. The Court said, “...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.”

The Court also referred to Section 10(1) of the Admiralty Act, which establishes a priority order for claims, with maritime liens having the highest priority, followed by registered mortgages, and then other claims. The Court noted that Kroll, being a mortgagee, had a higher priority than the applicants. However, it observed that Kroll had obtained a consent order and initiated proceedings in various jurisdictions for the same amount involved in the suit.

Given the unique circumstances, including the fact that the original owner conceded Kroll's claim, the Court found that the applicants, as maritime claimants, had a prima facie interest in the sale proceeds of the vessel. 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”

Therefore, the Court allowed the intervention applications.

Cause Title: Kroll Trustee Services Ltd vs M. V. AEON (Neutral Citation: 2024:BHC-OS:10671)

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