In ship financing, a bank's 'secured' mortgage is often legally worthless because ancient maritime laws allow other claims to jump to the front of the line.
March 31, 2026
Original Paper
The Maritime Paradox: Secured Credit, Statutory Subordination, and the Enforcement of Vessel Mortgages in India
SSRN · 6226098
The Takeaway
While a mortgage usually gives a bank the first right to an asset if a borrower defaults, 'maritime liens' for things like crew wages or unpaid supplies take legal priority over bank loans. This creates a paradox where multi-million dollar ships are actually very poor collateral, as the bank's supposedly 'secured' status is often just an illusion.
From the abstract
This research paper examines the systemic crisis in Indian ship financing precipitated by Section 31(d) of the SARFAESI Act, 2002, which explicitly excludes maritime vessels from its expedited recovery framework. While SARFAESI has revolutionized debt recovery for terrestrial assets, ship lending remains trapped in a cumbersome legal paradigm characterized by high risk and low liquidity. <div> <br> </div> <div> The study explores the "maritime paradox" where high-value assets offer poor security