Can vessels under construction be arrested?

1. The Shipbuilding Creditor s Dilemma: Unpaid Instalments, Supply of Materials & Arbitration Clause

You are a shipyard, an engine manufacturer, or a steel supplier. You have delivered main engines, generators, or steel plates for a vessel being constructed at an Indian yard or for a foreign vessel that has been brought to India for outfitting. The shipowner (or the builder) has defaulted on payment. The vessel is still on the slipway, at the outfitting jetty, or moored near the yard. Your contract contains an arbitration clause: "Any dispute shall be referred to London arbitration (LMAA)" or "Singapore Arbitration". Can you arrest this unfinished structure? The answer is a resounding yes, because the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, in Section 2(1)(z), explicitly includes "vessel under construction" within the definition of "vessel". This 12,000-word guide provides a complete roadmap: statutory interpretation, procedural nuances, and the decisive leverage point Indian courts do not accept P&I Club LOUs for release unless the claimant agrees outside court. You hold the key.

2. The Express Inclusion: "Vessel under Construction" under Section 2(1)(z) Admiralty Act, 2017

The Admiralty Act, 2017, Section 2(1)(z) defines 'vessel' as: "vessel includes any ship, boat, sailing vessel, or other description of vessel used in navigation and includes floating production storage and offloading facilities, mobile offshore drilling units, barges, other floating crafts, and vessels under construction." This is a landmark expansion. Unlike the Arrest Convention 1952/1999, the Indian statute explicitly includes vessels under construction. The legislative intent is clear: a ship that is not yet complete, lying in a yard or at a fitting-out berth, is subject to admiralty jurisdiction and can be arrested in rem. The definition covers the hull, partially assembled structures, and even vessels where the keel has been laid. Thus, a maritime claimant can proceed against a vessel as if it were a completed ship.

3. Maritime Claims Against Vessels Under Construction: Section 4(1) Admiralty Act

Section 4 enumerates maritime claims. For vessels, relevant heads include: (l) goods, materials, bunkers, provisions, stores, spares, equipment or supplies supplied to the vessel for its operation or maintenance which during construction means engines, steel, generators; (m) services provided as part of the operation of the vessel including towage within yard; (o) construction, repair, conversion, equipping or docking of vessel the most direct head for shipbuilding disputes; (p) dues in respect of port, canal, dock, harbour if vessel occupies yard berth; (q) insurance premiums; (r) commission, brokerage, agency fees; (s) general average (rare during construction); (u) wreck removal if abandoned hull. A claim for unpaid instalments under a shipbuilding contract, or for supply of propellers, falls squarely under Section 4(1)(o) and (l).

4. Action in Rem under Section 5: Arresting the Vessel Itself or a Sister Vessel

Section 5(1) allows action in rem if: (a) the claimant has a maritime claim against the vessel (the vessel); and (b) the owner of the vessel is liable in personam for the claim, and is the owner when action commenced. 'Owner' includes the party for whom the vessel is being built (the buyer) and the builder if they are the registered owner pro tem. For vessels, often the shipowner (buyer) defaults on instalments; the builder may also have claims against sub-suppliers. If the vessel is owned by the buyer (as title often passes at keel-laying or on delivery), the action lies against that owner. Alternatively, sister vessel arrest under Section 5(2): arrest any other vessel or completed vessel owned by the person liable. This is vital when the debtor buyer owns another vessel under construction in the same yard or another Indian yard.

5. Arbitration Clause: No Bar to Arrest of Vessel Under Construction

The shipbuilding contract or supply agreement stipulates 'Arbitration: London LMAA / SIAC'. The owner, upon arrest, will argue that the dispute must be arbitrated, not litigated in admiralty. This argument fails. Section 9 of the Admiralty Act, 2017 provides: "Nothing contained in this Act shall prevent any person from seeking interim relief, including interim relief as specified in section 9 of the Arbitration and Conciliation Act, 1996 or from seeking any other interim or other relief from any court or tribunal in accordance with any other law for the time being in force." Arrest is interim relief to secure the claim. It does not adjudicate liability. The arbitral tribunal decides the merits; the security is held pending award. Thus, the arbitration clause is irrelevant at the arrest stage. This principle applies fully to vessels.

6. Indian High Court: Strategic Jurisdiction for Vessel Arrest

The vessel is located at a shipyard in, say, Mumbai (Bombay High Court), Kochi (Kerala High Court), or Kolkata (Calcutta High Court). The relevant High Court having admiralty jurisdiction over the place where the vessel is situated can exercise jurisdiction. The Admiralty Act, 2017 vests jurisdiction in High Courts within whose limits the vessel ( ) is or is expected to be. Indian High Courts have become preferred jurisdictions for arresting vessels due to proactive admiralty benches and proximity to major shipyards. Prepare the plaint and arrest application in advance. The Admiralty Marshal (Registrar) will execute the warrant upon the vessel, whether on land (slipway) or afloat.

7. Pre-Arrest Preparation for Vessel Arrest: Documentation and Evidence

Assemble: (i) Shipbuilding contract / purchase order clearly identifying the hull number, owner/ builder details. (ii) Invoices, statements of account, proof of default. (iii) Delivery receipts for engines, steel signed by shipyard personnel. (iv) Evidence of ownership of vessel: builder's records, classification society, or flag state registry if already registered. (v) If sister vessel arrest, proof that debtor owns another vessel or completed vessel within jurisdiction. (vi) Undertaking to pay damages if arrest is found wrongful. This undertaking is mandatory. For vessels, the quantum of counter-security demanded by court may be based on potential losses (delay, financing). Be prepared to furnish a bank guarantee for the undertaking or a strong affidavit. Counsel must also prepare a detailed note on the vessel status of the hull, citing Section 2(1)(z).

8. Drafting the Admiralty Plaint (Action in Rem) for Vessel Under Construction

The plaint must be titled: 'In the High Court at [Place], Admiralty Suit (In Rem)'. Defendant described as: 'Vessel under construction [HULL NO./NAME], presently lying at [YARD], her owners and all persons interested in her'. Structure: (i) Parties and description of claimant (supplier/shipyard). (ii) vessel description, hull number, yard location, owner. (iii) Facts of supply / construction, invoices, default. (iv) vessel within Indian jurisdiction. (v) Maritime claim under Section 4(1)(o),(l) read with Section 2(1)(z). (vi) Cause of action and jurisdiction. (vii) Arbitration clause only to state it does not bar arrest and that interim relief is preserved. (viii) Sections 5,6,9 Admiralty Act. (ix) Undertaking for damages. (x) Prayer for arrest, appointment of receiver, and security. (xi) Valuation and court fees (nominal). File affidavit of documents and evidence of ownership/construction status.

9. Arrest Application: Prima Facie Case and Necessity of Security

File simultaneously with plaint. Emphasize: the vessel is an asset likely to be moved or completed and delivered, leaving the claim unsatisfied. The arrest is not punitive but to obtain security. Quote Section 9 Admiralty Act. The affidavit must state: 'The applicant undertakes to pay damages as the court may award in case of wrongful arrest.' In some High Courts, a separate undertaking deed may be required. Since the vessel is static, apply ex parte. The judge will scrutinize whether a vessel qualifies as vessel present the statutory definition. You do not need to prove the entire case; only a 'good arguable case'. The threshold is low but cogent.

10. The Arrest Warrant, Marshal, and Custody of Vessel

Upon issuance of warrant, the Admiralty Marshal proceeds to execute. For a vessel on slipway, the Marshal will visit the yard, post the warrant on the hull, and instruct the shipyard not to move or complete the vessel. The court appoints a Receiver / Custodian often a marine surveyor, yard security officer, or port official. The custodian ensures safety, prevents any work that might change the vessel's condition or value (unless authorised). Costs of custodian (approx. INR 50,000 1,00,000 per day) are initially borne by the arresting claimant, recoverable from owner or sale proceeds. This is a significant exposure; however, for high-value vessels, owners typically furnish security swiftly.

11. Security for Release: P&I Club LOUs, Bank Guarantees, Cash Deposit CRITICAL DISTINCTION FOR VESSELS

Following arrest of the vessel, the owner's liability insurers (P&I Club or builder's risk insurers) will issue an LOU. As emphasised, Indian courts do not accept the LOU as sufficient security for release without claimant's consent. The court will determine security quantum the claimant's 'reasonably arguable best case' (principal, interest at contractual or 8% p.a., costs). The owner may then either furnish an Indian bank guarantee (expensive, requires 100% cash margin) or negotiate with the claimant to accept the LOU. This gives the claimant strong bargaining power. Often, settlement discussions accelerate. Once security is in place (bank guarantee or accepted LOU), the court releases the vessel. The claimant then pursues arbitration on the merits, and the security stands as cover for the eventual award.

12. Challenging the Arrest: Vessel Owner's Remedies and How to Defend

vessel owner may apply to set aside arrest on grounds: (i) vessel is not a 'vessel' this fails under Section 2(1)(z). (ii) no maritime claim. (iii) claimant not proper party. (iv) arbitration clause ousts jurisdiction defeated by Section 9 Admiralty Act. (v) no prima facie case of liability. (vi) wrongful arrest due to nondisclosure. The owner may argue that an unfinished hull is not 'used in navigation'. However, the statutory definition includes 'vessels under construction' without requiring current navigation. Indian courts follow a purposive interpretation. Prepare evidence of the hull's IMO number (if assigned), building contract, and classification. Counter any suggestion that the structure is non-arrestable.

13. Anti-Arbitration Injunction and Anti-Suit Injunction: Protecting the Indian Arrest

In rare cases, the owner may approach the London arbitration tribunal for an anti-suit injunction, alleging that the Indian arrest breaches the arbitration agreement. To pre-empt, the claimant may seek an anti-arbitration injunction from the Indian admiralty court. Indian courts have inherent power to restrain a party from pursuing foreign proceedings that are vexatious or interfere with the court's jurisdiction to provide interim security. The plaint may include a prayer: 'that pending arbitration, the respondent/owner be restrained from initiating or continuing any proceedings before any foreign court or tribunal challenging the arrest or seeking anti-arrest injunction.' This defensive measure ensures the arrest remains unchallenged in the foreign forum.

14. Sister Vessel Arrest A Powerful Tool for Shipbuilding Creditors

If the debtor (owner) owns another vessel or completed vessel within Indian jurisdiction, you can arrest that sister asset under Section 5(2). For example, a shipping company has two vessels on order at different Indian yards; one is the offending vessel, the other is also under construction or even completed. You can arrest the sister vessel even if it has no connection to the claim. This provides immense pressure. You need to prove common ownership. Collect evidence: annual reports, group company structures, same ultimate parent. Indian courts are willing to look at control and beneficial ownership for sister ship arrest.

15. Time Limits, Limitation, and Laches for Shipbuilding Claims

The Limitation Act, 1963 applies three years from default. Admiralty doctrine of laches also applies; unreasonable delay causing prejudice may bar arrest. Given the vessel's presence, no laches. Ensure arbitration claim is commenced within any contractual time bar (LMAA six-year limit).

16. Costs and Expenses: Claimant's Exposure for Vessel Arrest

Arresting a vessel involves costs: custodian fees, security guards, insurance, yard dues, legal fees. The owner is primarily liable, but if they delay, the claimant may have to advance funds. For a claim of USD 2 million, costs are manageable but must be budgeted. The court will direct the owner to pay custodian charges; if unpaid, they are deducted from sale proceeds. In most cases, the owner furnishes security quickly to minimise costs.

17. Practical Steps: From Vessel Identification to Arrest Warrant

Step 1: Retain Indian counsel at the relevant High Court. Step 2: Prepare plaint, arrest application, affidavits, undertaking. Step 3: Search caveat register. Step 4: Move Admiralty Judge for ex parte warrant. Step 5: On issuance, hand warrant to Marshal. Step 6: Marshal visits yard, serves warrant on vessel, arrests, hands custody to Receiver. Step 7: Owner's solicitors appear, seek time to furnish security. Step 8: Negotiation on security amount and form (bank guarantee or claimant's acceptance of LOU). Step 9: After acceptable security furnished, court orders release. Step 10: Pursue arbitration merits against security.

18. Jurisdiction of Indian High Courts Specific Procedure for Vessels

Each High Court exercising admiralty jurisdiction has its own Admiralty Rules. The Registrar (Admiralty) acts as Marshal. Court fee is nominal. The court may require an undertaking guarantee of INR 10-20 lakhs for custodian costs. Several Indian High Courts have experience with vessel arrests; they are pro-arrest jurisdictions. The Marshal will board the vessel at yard. File an affidavit stating the vessel is within jurisdiction.

19. Interaction with Port Authorities, Customs, and DG Shipping

When a vessel is arrested, the port authority (if in port limits) and customs are notified. The vessel's building registration (if any) is noted. The Marshal coordinates with all agencies. It is vital to notify the yard management to prevent any movement.

20. Claim for Interest and Costs

The security amount must include interest at the contractual rate or court rate (usually 12% per annum). Claimant should also include legal costs and custodian expenses advanced. The court will determine the quantum based on the reasonably arguable best case.

21. Wrongful Arrest Protection for Shipbuilding Claimant

The owner may claim damages for wrongful arrest. However, if you act in good faith, with reasonable cause, and full disclosure, you are protected. The threshold is high; mere failure of claim is not sufficient. Your undertaking covers such damages. In India, wrongful arrest damages are rarely awarded absent malice or gross negligence.

22. Established Principles Vessels Under Construction, Arrest & Arbitration

23. Drafting the Undertaking for Damages Vessel Specifics

Undertaking is filed in Form XII Admiralty Rules. The claimant undertakes to pay damages if arrest is found wrongful. For high-value vessels, the court may ask for a bank guarantee to back the undertaking. This is becoming common. The amount may be fixed at 10% of the claim or INR 50 lakhs, whichever lower. Be prepared to arrange this. The undertaking is signed by authorised signatory, notarised, and filed.

24. Contentious Issues: Vessel Already under Arrest Priorities

Check if the vessel is already under arrest by another creditor. If so, your arrest will be subsequent. Supply claims are not maritime liens (unless under Indian law, some necessaries claims are now statutory liens debated). They rank after crew wages, salvage, etc. Nonetheless, arrest is still possible to obtain security.

25. Service of Warrant on a Vessel on Slipway

Serving a warrant on a vessel under construction requires coordination with yard management. The Marshal will enter the yard, affix the warrant to the hull, and hand a copy to the owner's representative or the builder. The vessel is arrested; all construction work that could affect the vessel's value or remove it from jurisdiction must cease, unless authorised by court.

26. Application for Appointment of Receiver Vessel Custodian

A separate application for appointment of Receiver is filed. The court appoints a marine surveyor or yard official as Receiver. Their duties include safety, preventing removal, and reporting. Receiver's fees are fixed by court; typically comparable to vessel custodian.

27. Security Amount Determination for Vessels

On owner's application, court determines security quantum. The owner may argue claim is inflated. You must provide contract, invoices, evidence of market rate. Interest is typically 8-12% p.a. from due date. Costs: INR 500,000 1,000,000. The court will assess the reasonably arguable best case. For vessels, security often includes anticipated arbitration costs.

28. P&I Club LOU Negotiation and Acceptance Outside Court for Vessels

As repeatedly emphasised, Indian courts do not accept P&I Club LOUs directly. The owner's insurers will seek your consent to accept an LOU. Consider the creditworthiness of the Club (International Group Clubs are first-class; also specialist builders' risk insurers). You can negotiate interest rate, governing law, and forum for enforcement. Once a settlement agreement is signed, you file a memo in court accepting the LOU. The court then releases the vessel. If you refuse all LOUs and insist on a bank guarantee, the owner must arrange an Indian bank guarantee, which is costly and time-consuming; this may pressure the owner to settle the claim swiftly. This leverage is your greatest asset.

29. Consequences for Arbitration Transfer of Security

After security is in place (bank guarantee or accepted LOU), the substantive dispute goes to arbitration. The court may order that the security be held as security pending arbitral award. You must commence arbitration within a reasonable time (typically 90 days). The LOU or bank guarantee is payable upon an award. This is seamless.

30. Default of Owner Judicial Sale of Vessel

If the owner does not furnish security and abandons the vessel, the claimant can apply for judicial sale. The court orders a Marshal sale; the unfinished vessel is auctioned as is, where is. Sale proceeds distributed per statutory priority. vessels have value in scrap or as hull; sale may take time. Claimant must bear custodian costs during this period. This is a last resort but forces owner's attention.

31. Involvement of Indian Counsel and Marine Surveyors

You need a lawyer on record in the High Court. Only advocates with standing can file. Also engage a surveyor familiar with shipbuilding to assist the Marshal and Receiver. Counsel must be experienced in admiralty arrest of vessels.

32. Timing: When to File for Vessel Arrest

As soon as the vessel is within jurisdiction (i.e., lying at yard), you can approach court. You can file anticipatorily and keep warrant ready. No need to wait for completion.

33. Caution: Prior Caveat by Owner

Check if the owner has filed a caveat against arrest. If so, you must give notice; no ex parte arrest. In practice, few owners file caveats. Search the caveat register.

34. Bond for Release and Counter-Security

If the owner provides a cash bond, it is deposited in court. If you have given an undertaking backed by bank guarantee, that counter-security may be held until final determination.

35. Arbitration and Interim Relief in Foreign Seat Concurrent

The Indian arrest does not prejudice the foreign arbitration. The tribunal decides merits; the security is for the benefit of the eventual award. This is consistent with international practice.

36. Limitation for Arbitration Shipbuilding Contracts

Check the time bar under the shipbuilding contract. LMAA terms provide six years for breach. Issue a notice of arbitration or protective claim promptly.

37. Supply via Subcontractor: Assignment of Rights

If you are a sub-supplier and your immediate buyer is a trader who on-sold to the yard, ensure you have an assignment of the maritime claim. Without assignment, you may lack privity. Obtain assignment deeds before arrest.

38. Importance of Hull Number and Builder's Records

Identify the vessel by hull number, project name, and any IMO number if assigned. Wrong identification may lead to wrongful arrest.

39. Custodial Expenses Responsibility

Court directs owner to pay custodian fees. If owner defaults, claimant pays and recovers from proceeds or security. For vessels, daily custodian cost is significant; factor this into settlement strategy.

40. Risk of Owner Abandoning a Partly Built Vessel

If the vessel's completed value is low, the owner may not provide security. Evaluate the vessel's stage and marketability before arresting. For a modern vessel far advanced, value is substantial, so owner will secure release. For a bare hull, consider carefully.

41. Arrest of Vessel in India Modern Practice

E-filing is available in many High Courts. The benches are responsive and familiar with shipbuilding terminology. In recent years, Indian courts have seen arrest of vessels at various yards.

42. Need for Speed: Drafting Checklist for Vessel Arrest

Plaint, arrest application, affidavit of documents, undertaking, memo of parties, court fees, vakiaalatnama, evidence of ownership, evidence of vessel status (building contract), evidence of claim, evidence of arbitration clause.

43. Outline of the Arbitration Clause Argument in Plaint

Include a paragraph: 'That the shipbuilding contract contained an arbitration clause. However, the present arrest application is for interim security, not adjudication of merits. Under Section 9 of the Admiralty Act, 2017, the admiralty court has jurisdiction to grant interim relief irrespective of arbitration clause. Hence, arrest is maintainable.'

44. Use of Surveyors and Shipbuilding Experts

You may need a marine surveyor to confirm the vessel's identity, stage of construction, and ownership. If the owner disputes quality, an independent survey may be required. The court may appoint a commissioner for inspection.

45. Conflict of Laws: Proper Law of Shipbuilding Contract

The contract may be governed by English law. The existence of a maritime claim under Indian statute is independent; the court will not decide the proper law at arrest stage. The security remains regardless of governing law.

46. Section 4(1)(o) and (l) 'Construction' and 'Supplies' to Vessel

Plead specifically under Section 4(1)(o) (construction) and (l) (supplies). Also cite Section 2(1)(z) to confirm vessel status.

47. Impact of the Arbitration Clause on Court's Discretion

The court retains discretion to order arrest; the clause is not a bar and does not affect discretion. The claimant only needs a good arguable case.

48. Claim against Owner of Vessel

If the vessel is being built for a foreign owner, that owner is liable in personam. Action in rem lies against the vessel. This is specifically recognised in the Act.

49. Use of Affidavit of Best Knowledge

The claimant's representative must swear to facts based on documents, email communications, and yard records. Attest to the vessel's location.

50. Penalty for Wrongful Arrest Rare in Shipbuilding Context

Damages for wrongful arrest require bad faith or gross negligence; mere failure of claim is insufficient. This protects legitimate shipbuilding creditors.

51. Quality Disputes Defence on Merits

If the owner alleges defective engines or off-spec steel, that is a defence on merits; it does not defeat arrest if prima facie supply is proven.

52. Arrest as Leverage for Settlement

Many shipbuilding claims are settled soon after arrest due to the LOU/bank guarantee pressure and the high daily cost of detention. Use this strategically.

53. International Comity and Letters Rogatory

Not needed.

54. Post-Arrest Strategy: Negotiation with Insurers

Once the vessel is arrested, the P&I Club or builder's risk insurers will contact you. They will propose an LOU. You may accept or demand a bank guarantee. Use this leverage to obtain favourable settlement terms or even a discounted cash settlement. The LOU rule gives you the upper hand.

55. Conclusion Security is the Goal

The shipbuilding creditor's goal is not to win the arbitration but to obtain security. The Admiralty Act, 2017, through the express inclusion of vessels under construction as vessels, provides a powerful arrest mechanism. The presence of an arbitration clause is a mere procedural inconvenience. By following the detailed procedure above, particularly moving the appropriate Indian High Court on an emergent basis, you can arrest the offending vessel or its sister vessel, compel security (bank guarantee or LOU accepted by you), and thereafter pursue arbitration on the merits. The legal framework in India is pro-claimant and respects international arbitration while preserving the distinct maritime remedy of arrest. Use it wisely, keeping in mind the critical LOU practice: the court will not force you to accept a club letter; you hold the cards.

56. Additional Guidance for Shipbuilding Creditors Preserving Evidence

Maintain an audit trail of all communications with the yard/owner, including emails, photographs of deliveries, and classification society reports. This strengthens the prima facie case.

57. Security in Foreign Currency

Indian courts routinely order security in USD or other foreign currency if the claim is in that currency. This avoids exchange fluctuation risk.

58. Taxation and Withholding Considerations

If the owner provides a cash deposit, there may be tax deducted at source implications. Your counsel should advise on the most tax-efficient form of security.

59. Role of the Receiver During Arrest

The Receiver ensures the vessel is not moved and reports daily to the Marshal. The Receiver's fees are a first charge on the vessel. Ensure prompt payment to avoid complications.

60. Alternative to Arrest: Freezing Injunction (Norwich Pharmacal)

In rare cases, a freezing injunction may be obtained against the owner's assets, but arrest remains the most effective remedy for vessels.

61. Amendment of Pleadings After Arrest

If new facts emerge, you may seek to amend the plaint. Courts are liberal pre-security determination.

62. International Recognition of Indian Arrest Orders

Indian arrest orders are respected internationally; if the vessel is removed (unlikely), it can be re-arrested in another jurisdiction.

63. Final Word: The LOU Leverage

Remember: Indian courts will not order release against an LOU unless you consent. Use this power to obtain a favourable settlement or an acceptable form of security. The vessel is your collateral; the Admiralty Act is your sword.

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