Legitimacy of an Undertaking Instead of Arrest — A Conundrum in Securing a Claim in Action in rem

Under the admiralty law, a person having a maritime claim (as per Section 4) or a maritime lien (as per Section 9) against the defendant, can initiate proceedings by taking out an action in rem

Introduction

A recent judgment by the Division Bench of the Gujarat High Court in Segal Ships (P) Ltd. v. M.V. Tulsi Sagar¹ has reiterated the legal necessity of granting arrest of the vessel when a prima facie maritime claim exists under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (Admiralty Act, 2017), and why the acceptance of an undertaking (to not sail away) is anathema to settled admiralty jurisprudence. The Division Bench overturned the deviation where a mere “undertaking” by the ship owner was accepted in lieu of vessel arrest.

Action in rem and arrest

In India, the courts are governed by the Admiralty Act, 2017, and the rules framed thereunder. Under the admiralty law, a person having a maritime claim (as per Section 4) or a maritime lien (as per Section 9) against the defendant, can initiate proceedings by taking out an action in rem, i.e. by seeking an arrest of the ship owned/demise chartered by the defendant or in personam to satisfy its claim.

In admiralty law, the vessel has a limited juridical personality. The law confers upon the plaintiff the right in rem to proceed against the ship as distinguished from a right in personam to proceed against the owner. Therefore, upon the appearance of the defendants (owner/charterer/any party interested in vessel) before the Court, to release the ship by furnishing the security would convert the in rem proceedings to in personam.

The threshold: Prima facie case

In order to obtain arrest of the vessel, the plaintiff must satisfy that it has a prima facie case.

In the Segal Ships case², the dispute arose from multiple “Vessel Charter Cum Sale Agreements” entered into between the parties. The owner of the vessels failed to make the vessels available for joint inspection, a condition precedent before delivery, and allegedly chartered them to third parties. The plaintiff, being aggrieved by the same, filed an admiralty suit seeking arrest of vessels on account of breach of contract and seeking damages for loss of profits. Before the learned Single Judge, the defendants resisted the arrest and submitted that they are willing to give an undertaking that the vessels will not sail out of the jurisdiction of the Court and the learned Single Judge, although found that the plaintiff has a maritime claim, asked the defendants to furnish the undertakings (to not sail away) for only two vessels out of five. On the next occasion as well, the defendants pressed for continuation of the undertaking and opposed arrest.

Hence, plaintiff-appellants preferred an appeal before the Division Bench, praying for the arrest of all the vessels. The respondents-defendants attempted to argue that since the delivery of the vessels had not yet taken place, the charter period had not commenced, and thus no “agreement relating to use or hire” existed under Section 4(1)(h) of the Act. This defence was rejected by the Division Bench as the “effective date” of the agreement was the date of execution and not the date of delivery of the vessel. Consequently, the dispute squarely fell within Section 4(1)(h) (agreement relating to the use or hire of the vessel… or otherwise), Admiralty Act, 2017.

The Division Bench reiterated the principle established in M.V. Elisabeth v. Harwan Investment and Trading (P) Ltd.³ and Videsh Sanchar Nigam Ltd. v. M.V. Kapitan Kud⁴ that if the plaintiff has an arguable case, even a difficult one, the action must be allowed to proceed, and the security must be obtained. Further, the appellate court clarified that once the Court is satisfied that a maritime claim has arisen and the vessel is available, the only option available to the Court is to grant an order of arrest.

The Division Bench highlighted that failing to grant the arrest would frustrate the admiralty action and render the suit infructuous. If a vessel is allowed to sail without security, based on an undertaking, and the owner subsequently defaults or the vessel is lost or damaged or new encumbrances are created, the plaintiff would be left with a worthless paper decree. The Court held that the order of arrest of the vessel was mandatory, and the burden lies on the defendants to approach the Court after arrest to either offer security or prefer an application for vacating the order of arrest.

The fallacy of the “undertaking”

The issue in Segal Ships case⁵ was the substitution of a judicial warrant of arrest with a defendant’s undertaking (to not sail away). The defendants argued that the arrest was unnecessary because they were willing to promise that the vessels would remain in the territorial waters of India.

This approach is legally flawed for several reasons:

1. Action in rem versus action in personam

Admiralty suits are initiated in rem (against the vessel). The vessel itself is the first defendant. An undertaking is a personal promise by the owner (action in personam). Accepting an undertaking effectively converts the suit prematurely, stripping the plaintiff of the security the Act guarantees. The Division Bench reiterated that even when a ship owner appears, the action qua the vessel continues to be an action in rem until the security is furnished to secure the claim of the plaintiff.

2. Tangible security versus paper promises

The objective of arrest is to obtain security to satisfy a potential decree. An undertaking not to sail does not secure the amount of the claim; it merely keeps the asset within reach, subject to deterioration, market fluctuation, or subsequent encumbrances. The only recognised method to release a vessel or avoid arrest is by furnishing appropriate security, not by promising to stay.

3. Lack of statutory basis

The Division Bench explicitly stated that the course adopted by the learned Single Judge, accepting an assurance at the bar instead of ordering arrest, is not an exercise recognised under the proceedings of the Admiralty Act, 2017.

Conclusion

The judgment in Segal Ships case⁶ serves as a vital ruling as it clarifies that the undertakings are not security, and a promise to remain in jurisdiction is not a substitute for the arrest of a vessel. Thus, the Division Bench modified the learned Single Judges’ orders and directed for the immediate arrest of all the vessels.