The Shipping Law Review: India
Commercial overview of the shipping industry
India has untapped potential to leverage its 7,517 kilometres of coastline, spanning nine states and four union territories, and has sought to use this with a thrust towards an export-led development model. India's merchandise trade has expanded at more than twice the growth rate of global merchandise exports during the past decade. With 12 major ports and 205 notified non-major ports facilitating seaborne trade, more than 90 per cent of India's merchandise trade by volume and around 70 per cent by value is moved through maritime transport.
In keeping with its goal of encouraging private participation and foreign investment in the shipping sector, the government focused in its recent budget2 on its aim to capitalise on India's advantageous geographical location. The government has accordingly announced that seven projects worth about 20 billion rupees will be offered by the Major Ports on Public Private Partnership in financial year 2021–2022, thereby allowing major ports across the country to outsource management of their operational services to private entities. Further, a scheme was announced for promoting flagging of merchant ships in India by providing subsidy support to Indian shipping companies in global tenders floated by ministries and central public sector enterprises. The government also highlighted that, pursuant to India having enacted the Recycling of Ships Act 2019 and acceded to the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships 2009 (the Hong Kong Convention (HKC)), around 90 ship recycling yards at Alang in Gujarat have been granted the HKC-compliant certificate with the government working to bring more ships to India from Europe and Japan and aiming to double the recycling capacity of around 4.5 million light displacement tonnes by 2024.
There is a commonly held view, however, that to achieve the ambitious target of having a 5 per cent share in world exports and climb the ranks in ease of doing business, India needs to recalibrate the current legal and regulatory regime governing its shipping ecosystem. Although the paradigm shift in policy in recent years reflects this need to strengthen shipping regulations to tie in to India's overarching aim to become a viable investment destination, further progress is still required to achieve this objective.
General overview of the legislative framework
Shipping in India is centrally regulated and exclusively controlled by the Ministry of Shipping (MoS). The MoS has set up a semi-autonomous statutory body – the Directorate General of Shipping (the DG Shipping) – whose powers are circumscribed by the Indian Merchant Shipping Act 1958 (MSA) to deal with all matters relating to shipping policy and legislation, implementation of various international conventions and other mandatory regulations of the International Maritime Organization. The MSA is a general umbrella legislation to deal with merchant shipping that empowers the DG Shipping to promulgate delegated legislation, such as circulars and notifications, to regulate all issues relating to shipping. The Mercantile Maritime Department is a body under the control of the DG Shipping dealing with the registration of Indian-flagged vessels, surveys of ships and enforcement of international regulations.
The MoS has a chartering wing (Transchart) to broker transportation of government-owned and government-controlled cargoes, and regularly finalises long-term time charter parties, contracts of affreightment for various Indian government-owned entities.
Although India allows 100 per cent foreign direct investment under the automatic route in the shipping sector, there have been very few global players who have sought to invest and flag their vessels in India. As a general rule, foreign investors set up special purpose vehicles that in turn own an India-flagged vessel only to take advantage of the cabotage policy in India.
Generally, an Indian shipping company would have to pay corporate tax at the rate of 33.3 per cent, unless it opted for the tonnage tax system, which is between 1 per cent and 2 per cent of its income. An Indian shipping company could opt for the tonnage tax system by fulfilling certain guidelines laid down by the government, such as the training of Indian seafarers and making financial provisions for new vessel ownership. The Indian indirect tax regime has undergone a radical overhaul with the implementation of the goods and services tax regime (the new taxation structure is a destination-based tax on consumption as compared to the principle of origin-based taxation under the erstwhile regime). The Indian government has issued an amendment through its latest notifications,3 stating that the export of services by way of transport of goods by vessel will be exempted from goods and services tax, effective from 25 January 2018 with a 'sunset clause' up to 30 September 2021 (i.e., the exemption will automatically be terminated after this fixed period, unless further extended).
Maritime India Vision 2030
The MoS has undertaken an aggressive development of the maritime landscape in India, including introducing the Maritime India Vision 2030, a 10-year blueprint with the aim of overhauling the Indian maritime sector.4
The government has also launched a dedicated portal for inviting and facilitating investments in the maritime sector in India, which sets out in detail all the investment opportunities as part of the initiative.5
Forum and jurisdiction
Commercial disputes in India are litigated primarily in civil courts having territorial jurisdiction (over the cause of action or the defendant in the action) or pecuniary jurisdiction. For general suits, the high courts of Bombay, Calcutta, Delhi, Madras and Himachal Pradesh exercise original jurisdiction for claims that have arisen within their territorial and pecuniary jurisdiction, while all other civil suits have to be instituted in the courts of first instance, which are generally the relevant district courts. However, admiralty suits are to be brought before the high court of a coastal state, which are the only courts vested with admiralty jurisdiction. Under the current admiralty regime, the high court of a given state can exercise admiralty jurisdiction only over vessels calling at its own coastal waters.
The Commercial Courts Act 2015 radically upgraded the existing judicial procedural framework. The government has established special commercial courts to deal exclusively with 'commercial disputes' involving specialist subject matters (i.e., export or admiralty and maritime law, carriage of goods, import of merchandise, sale of goods and insurance) and for claims of a specified value.6 The Act makes pre-institution mediation compulsory, unless an urgent interim relief is sought, in which case the Commercial Court can be approached directly without having to go through the mediation process.7
The Commercial Courts Act imposes fixed and strict deadlines to complete procedural formalities. Notably, the Act provides for a strict time limit to present the statement of defence within 120 days of the date of service of the writ of summons, failing which the right to file the statement of defence is forfeited.8 This position has been confirmed by the Apex Court,9 which has also held that an interim application for rejection of the plaint or statement of claim will by itself not stop the clock of 120 days from running. The Commercial Courts Act also seeks to impose a duty of full and frank disclosure of facts and documents at the time of filing the claim statement and defence, and gives the court greater power to compel parties to disclose documents.
The Commercial Courts Act also introduces a regime that now makes legal costs recoverable. Under the new regime, it is incumbent on the court to award legal costs after disposal of the suit and the judge must set out reasons why legal costs have not been awarded.10
Some important points to bear in mind in the context of issues arising in India on the choice of law and civil jurisdiction are as follows:
- If a contract provides for parties to submit to the jurisdiction of a particular court, there is a general presumption that the intention of the parties would be to exclude the jurisdiction of all other courts.
- As a general rule, in the absence of a cause of action arising in India, it may be difficult for two foreign parties to litigate before an Indian court, save for admiralty disputes in which the court acquires jurisdiction by virtue of the vessel having been arrested in India, by an order of an Indian littoral high court.11
- An Indian entity and a foreign entity can agree to litigate in a foreign court, which is enforceable as a matter of Indian law.12
- Two Indian parties cannot exclude, by contract, the applicability of Indian substantive law if the place of performance of the contract is in India.
- Indian courts can apply foreign law in deciding disputes. The question of what constitutes foreign law is a question of fact.13 If no evidence is adduced regarding foreign law, normally the presumption is that it is the same as the Indian law on the point under consideration.14
- Limitation being an issue of the lex fori, the Indian Limitation Act 1963 will apply mandatorily to disputes litigated in India. For most types of causes of action, the limitation period under Indian law is three years.
- Parties cannot extend or reduce the limitation period by contract.15
Owing to the onset of covid-19, the Supreme Court of India took suo motu note of the various hardships being faced by litigants in approaching judicial forums and, accordingly, passed an order extending limitation periods, the first of which was passed at the onset of pandemic in India on 23 March 2020. This order extending limitation indefinitely was addressed by a follow-up order dated 8 March 2021, wherein the indefinite extension to limitation was to be brought to an end based on a formula set out therein. However, given that the situation in India deteriorated again in April 2021, the Supreme Court has again has extended limitation indefinitely by way of an order dated 27 April 2021.
ii Arbitration and ADR
Maritime arbitrations in India may be ad hoc or institutional arbitration bodies such as the Indian Council of Arbitration (ICA). It is common for shipping contracts involving government-owned companies to provide for arbitration in India to be administered by the ICA under its Maritime Arbitration Rules.
India has given effect to the UNCITRAL Model Law on International Commercial Arbitration through the Arbitration and Conciliation Act 1996 (the Arbitration Act). The Arbitration Act was significantly amended in 2015, ushering in what is essentially a new arbitration regime following the amendment. The default court to move any application with respect to an international commercial arbitration (when one of the parties is a foreign party irrespective of whether the arbitration is seated in India) would be the relevant high court.
The Arbitration Act empowers Indian courts to pass interim orders for security and other ancillary relief in support of arbitration taking place both within and outside India.16 The courts have held that while passing such interim orders, they are not bound by the strict prerequisites applicable when obtaining an attachment before judgment as prescribed under Order 38, Rule 5 of the Code of Civil Procedure 1908 (CPC); in other words, these requirements under the CPC act merely as guidelines.17 Further, in appropriate cases where the defence is prima facie untenable, an order of deposit of security can be made at the interim stage.18 However, courts have clarified that they would not have subject-matter jurisdiction to grant relief in a dispute involving foreign parties having no nexus to India.19
The 2019 amendment to the Arbitration Act amended Section 45 of the Act20 by permitting reference to foreign-seated arbitrations if a prima facie case is made out 'that the said agreement is null and void, inoperative or incapable of being performed'. The Supreme Court, in Chloro Controls India Private Ltd v. Severn Trent Water Purification Inc 21 (the Chloro Controls judgement), had held that the court could have a full trial (which includes leading oral or documentary evidence) to make a determination on whether an arbitration agreement exists before referring the parties to arbitration. However, this position has been diluted in light of the 2019 amendment to the Arbitration Act.
Another notable feature of the Act is allowing 'any person claiming through or under' a party who was a signatory of the original arbitration agreement to be party to the arbitration agreement.22 This has the effect of binding even an assignee or subrogatee within the ambit of the arbitration agreement contained in the underlying contract. The High Court of Gujarat has held that an endorsee of a bill of lading, which incorporates the terms of the charter party, including the law and arbitration clause, would be bound by such an arbitration agreement.23 The Supreme Court of India has held that a generic incorporation of a standard form contract in a particular industry (e.g., in the shipping industry, Gencon, NYPE, Norwegian Sale Form and Supplytime) is sufficient to incorporate the arbitration agreement contained in those forms into the underlying contract.24
In the context of the classic 'seat versus venue' debate, a three-judge bench of the Supreme Court of India held that the designation of 'venue' of the arbitration would not confer exclusive jurisdiction on the high court with jurisdiction over that 'venue' to supervise the arbitration.25
In PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited,26 the Supreme Court has authoritatively ruled that there is no bar on two Indian parties agreeing to a foreign-seated arbitration and this would not bar the parties from seeking interim reliefs. The Court in this ruling also seems to have opened the gates for Indian parties to even agree to the substantive law of the contract being foreign law. The Court further clarified that should the provisions of Indian law be violated, the foreign award can also be challenged on the ground of public policy as provided under Section 48(2)(a) of the Arbitration Act.
The Arbitration Act requires an arbitrator to disclose in writing any circumstances relating to his or her impartiality and independence, and contains an exhaustive list27 of grounds. Significantly, the Supreme Court has held that a party having a financial interest in an arbitration is barred from unilaterally appointing an arbitrator.28 The Court has also held that Section 12(5) read with the Seventh Schedule of the Arbitration Act is a mandatory and non-derogable provision of the Act.29 However, the Bombay High Court has recognised: 'Under Explanation 3 to the Fifth Schedule, maritime or commodities arbitration may draw arbitrators from a small, specialized pool, in which case it is the custom and practice for parties to appoint the same Arbitrator in different cases.'30
As per the 2019 amendment to the Act, pleadings are required to be completed within six months of the date on which written notice of appointment is served on the arbitrators.31 An arbitrator is mandatorily required to dispose the reference within one year of the period of completion of pleadings in domestic arbitrations, whereas this period is merely a direction for international commercial arbitration.32
Following the 2015 amendment, the Arbitration Act has introduced fast-track arbitration, or document-only arbitration (with the consent of both parties), as set out in Section 29B of the Arbitration Act.
In the event that the arbitration proceeding is an 'international commercial arbitration' seated in India (i.e., when one of the parties to the arbitration is a foreign party), the scope of interference by Indian courts would be limited and similar to the threshold of deciding the award debtor's application to resist the enforcement of a foreign arbitral award in India whereby the Indian court is precluded from setting aside the Indian-seated arbitral award on the ground of 'patent illegality'. However, the 2020 amendment to the Arbitration Act, in the context of domestic arbitrations, has provided that should an arbitration agreement or the making of the award be induced by fraud or corruption and the concerned court is prima facie satisfied of the same, then the court shall unconditionally stay the execution of the award.33
Insofar as domestic arbitrations are concerned, under the Arbitration Act, the fact that the award debtor has filed an application to challenge or set aside the award does not in itself amount to a stay on the execution of the award by the award holder.34 To obtain a stay on execution, the award debtor would need to file a separate application under Section 36(3) of the Act. The Supreme Court of India has further clarified this position by holding that the amended Section 36 of the Act has retrospective effect, and thereby the automatic stay as envisaged under the old Section 36 no longer applies to any pending application challenging an award under Section 34 of the Act.35 As a general rule, a court would pass an order staying the execution of the award, conditional on the party seeking the stay furnishing security for 50 per cent of the value of the award. That said, should a party make out a strong, exceptional and overwhelmingly compelling case for not furnishing a security, the court may not order security to be furnished.36
In the case of an arbitration between two Indian parties seated in India, the Supreme Court in Garware Wall Ropes v. Coastal Marine Constructions & Engineering Ltd 37 (the Garware judgment) has created uncertainty about whether an Indian court can entertain an application for interim measures or security in aid of arbitration seated in India, between two Indian parties ,when the underlying contract had not been appropriately stamped. However, courts and the Supreme Court have clarified that this judgment would not be applicable to an application under Section 9 (i.e., seeking interim reliefs).38 In fact, a coordinate bench of the Supreme Court has doubted the proposition postulated in the Garware judgment and has referred the matter to a constitutional bench for adjudication.39
iii Enforcement of foreign arbitral awards and foreign judgments
Enforcement of arbitral awards under the New York or Geneva Convention
Although the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) has been incorporated into the Arbitration Act, a foreign arbitral award can be enforced in India only if the government declares the country in which the award was passed to be a 'reciprocating territory' under Section 44 or 53 of the Arbitration Act. However, should a notified country be subsequently divided or disintegrated, the award from the new territory (even if is not notified) can be enforced as per the Arbitration Act.40 A foreign award holder seeking to enforce an award in India would have to apply to the court, within whose jurisdiction the award debtor has its assets, to enforce the foreign award.41 Presently, there is no requirement to convert the foreign award into a judgment of the Indian court by way of separate proceedings and the party seeking to enforce a foreign award can directly initiate consolidation proceedings for enforcement and execution to liquidate the assets of the award debtor.42 Enforcement and execution proceedings can be initiated in India by placing on record the following documents before the Indian court:
- the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;
- the original agreement for arbitration or a duly certified thereof; and
- evidence as may be necessary to prove that the award is a foreign award. In this regard, generally an affidavit from a lawyer from the country in which the foreign award was passed, stating that the foreign award is final and binding as a matter of the laws in that jurisdiction and confirming that there is no appeal against the award pending in that jurisdiction, suffices.
In PEC Limited v. Austbulk Shipping SDN BHD,43 the Supreme Court held that the word 'shall' in Section 47 of the Arbitration Act has to be read as 'may' and, thus, the need for producing the original award or the original arbitration agreement or its certified copy is not mandatory at the time of filing proceedings for enforcement of an arbitral award.
In Government of India v. Vedanta Limited and Ors (the Vedanta judgment),44 the Supreme Court restated the circumstances under which the enforcement of an award may be refused as being, inter alia:
- the award being passed in 'violation of procedural due process in the conduct of the arbitral proceedings' in observing procedural fairness that 'constitutes a fundamental basis for the integrity of the arbitral process' since 'fair and equal treatment of the parties is a non-derogable and mandatory provision'; and
- 'the award is in conflict with the basic notion of justice, or in violation of the substantive public policy of India'.
One commonly used ground under Section 48 of the Arbitration Act is the issue of public policy, whereby the award debtor would seek to reargue the underlying issues of the arbitration proceedings on merits, and there hve been a plethora of cases in which the courts considered the merits. However, the scope of public policy was clarified in two landmark judgments of the Supreme Court in 2015.45 Subsequently, the 2015 amendment to Section 48 of the Arbitration Act included an explanation that clarified that 'for the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute'. In Vijay Karia and Ors v. Prysmian Cavi E Sistei SRL,46 the Supreme Court endeavoured to settle this position of law by observing that the grounds mentioned under Section 48 can be split into three groups: those affecting the jurisdiction of the arbitration proceedings, grounds affecting the party interest alone and grounds that go to public policy of India. Further, in Centrotrade Minerals v. Hindustan Copper,47 the Supreme Court held that a party is 'otherwise unable to present his case' under Section 48(1)(b) only if it is not given an opportunity to present its case because of circumstances outside the party's control. However, the Supreme Court may have slightly undone the good with its subsequent pronouncement in NAFED v. Alimenta SA,48 wherein it held a foreign award to be unenforceable, based on the finding that the transactions contemplated under the underlying agreement were in violation of Indian law and, therefore, falling foul of Indian public policy.
The Supreme Court in the Vedanta judgment49 has now clarified that the limitation period for filing enforcement or execution of a foreign award under Section 47 of the Arbitration Act would be covered under the residuary provision, being Article 137 of the Limitation Act 1963, which prescribes a period of three years from when the right to apply arises.
Enforcement of foreign judgments in India
A foreign judgment can only be enforced in India as if it were a decree of an Indian court if it has been passed in a reciprocating territory declared by the Indian government,50 subject to the decree holder establishing that the foreign decree satisfies the requirements of Section 13 of the CPC. A party seeking enforcement of a judgment passed in a court in a non-reciprocating territory would have to file a substantial lawsuit in India on the cause of action stemming from the judgment passed by the foreign court. Furthermore, only a foreign 'decree' can be enforced in India and not an interim order. Courts in India have the right to examine whether a foreign judgment has been given on the merits.51
In Bank of Baroda v. Kotak Mahindra Bank Limited,52 the Supreme Court clarified that the limitation period for executing a foreign decree, under Section 44A of the CPC, passed by a superior court of a reciprocating territory (cause country) will be the limitation prescribed under the laws of the cause country. When the execution proceedings are initiated in India pursuant to the decree passed in the cause country, the limitation period for the proceedings shall be governed by Article 137 of the Limitation Act 1963 (i.e., three years from the date of finalisation of execution proceedings in the cause country).
Although the Gujarat High Court, in MV Cape Climber v. Glory Wealth Shipping Pvt Ltd,53 has allowed the enforcement of a London arbitral award that has subsequently been converted into a judgment of the High Court of England and Wales (as a decree of that court), the Delhi High Court, in Marina World Shipping Corporation Ltd v. Jindal Exports & Imports Private Ltd,54 rejected this approach and held that a London arbitral award can only be enforced in India under the Arbitration Act and not as an English judgment under the CPC. The Bombay High Court held in Marine Geotechnic LLC v. Coastal Marine Construction & Engineering Ltd 55 that a foreign judgment could in principle be directly enforced in India by way of bankruptcy or winding-up proceedings, strictly subject to the decree holder establishing that the foreign decree satisfies the requirements of Section 13 of the CPC.
Under Indian law, as a general rule of contractual construction, an attempt must be made to reconcile the relevant terms of a contract if possible and not treat any term as 'idle surplusage'.56 Indian courts have held that if a party seeks to invoke a termination clause in the contract, it is incumbent on the party to strictly follow the procedural requirements stipulated in the contract to effect a valid termination.57
As of 2019, there are about 30 shipyards in India and about 33 dry docks for ship repairs.
India overhauled its Foreign Direct Investment policy significantly in 2018, thereby allowing 100 per cent foreign direct investment in ports and shipping in India through the automatic route.
To provide a boost to the government's Make In India campaign, various state maritime boards offer building plots adjacent to coasts on concessional terms for the purposes of shipbuilding in India. The government has also launched a Shipbuilding Financial Assistance Policy with the aim of providing financial assistance to shipyards for shipbuilding contracts signed between 1 April 2016 and 31 March 2026.58
The shipbuilding industry is subject to goods and service tax (GST), which subsumes the earlier levy of value added tax, central sales tax, excise duty, octroi, service tax, etc. Customs duty, customs bonds, cost-clearing and forwarding excise, foreign income tax and taxes by ancillary units and subcontractors are charged separately. GST at 5 per cent is applicable on all design and engineering services procured by the shipyards during the course of ship construction. It is important to ensure that any shipbuilding contract with an Indian counterparty is governed by Indian law and jurisdiction has clear demarcations of the liability on each party, for the payment of taxes imposed by the Indian authorities.
ii Specific Relief Act 1963
India recast the law relating to specific performance of contracts from an equitable and discretionary remedy to be exercised in limited circumstances to a statutory remedy. The new regime provides for only four exceptions wherein the specific performance of a particular contract would not be directed by the courts, namely (1) a case of 'substituted performance', (2) performance of a continuous duty that the courts cannot supervise, (3) a contract heavily dependent on the personal qualifications of the contracting parties and (4) a contract of a determinable nature.59 Unlike the old regime, it is now no longer impossible to obtain an order directing specific performance of a contract, for the non-performance of which compensation is an adequate relief. In fact, under the new regime, a court, even after granting specific performance, can additionally grant a certain amount of compensation.
Indian courts would not be able to pass an order of injunction if it would be likely to impede the completion of specific infrastructure projects, which, inter alia, include capital dredging of ports and other operations in ports, shipyards (including a floating or land-based facility with the essential features of waterfront, turning basin, berthing and docking facilities, slipways or ship lifts, and which is self-sufficient for carrying on shipbuilding, repair or breaking activities), inland waterways, oil pipelines, oil, gas or liquefied natural gas storage facilities (including strategic storage of crude oil), among other things.
iii Contracts of carriage
The legislation and principles of law are applicable to contracts of carriage.
The Indian Carriage of Goods by Sea Act 1925
The Indian Carriage of Goods by Sea Act 1925 (the Indian COGSA) incorporates the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading 1924 (the Hague Rules) in its Schedule. In 1993, India amended the COGSA and included certain provisions of the Protocol to amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading 1968 (the Hague-Visby Rules). Significantly, the legislation increased the limits as prescribed in the Hague-Visby Rules. However, the Rules do not, in themselves, have the force of law in India.
The Indian COGSA is applicable to outward cargo (i.e., ships carrying goods from Indian ports to foreign ports or between ports in India) and does not apply to inward cargo (i.e., ships carrying goods from foreign ports to Indian ports). In Shipping Corporation of India Ltd v. Bharat Earth Movers Ltd,60 the Supreme Court of India had to determine whether the Indian COGSA or the Japanese Carriage of Goods by Sea Act 1992 (the Japanese COGSA) applied in a case involving goods carried from Japan to India. The Court held that the Indian COGSA did not apply to inward shipments and chose to apply the Japanese COGSA. In another case, the Supreme Court clarified that for the Indian COGSA to become applicable, the port of loading has to be in India.61 The courts have also allowed carriers to take defences enumerated under Article IV of the Hague Rules (e.g., fire).62
The limitation period under the Indian COGSA is one year, unlike the general limitation period of three years provided under the Limitation Act 1963. The Multimodal Transport Act 1993 applies to multimodal transportation of cargo from any place in India to a place outside India using two or more modes of transport.
The Indian Contract Act 1872
Sections 73 to 75 of the Indian Contract Act 1872 deal with the measure of damages to which the claimant may be entitled, arising out of the counterparty's breach of contract. In the case of liquidated damages, there appears to be a slight divergence between Indian and English law. Indian courts have held that in the absence of loss, a claimant is unlikely to be awarded liquidated damages. In their interpretation of Section 74 of the Indian Contract Act 1872, Indian courts have taken the view that clauses in a contract providing for liquidated damages are enforceable only if it is impossible to compute the loss resulting from the breach of a contract, subject to the same not being a penalty clause.63
If cargo is to be discharged at a port designated as a major port, a shipowner may be able to exercise a statutory lien over the cargo shipped on board the vessel for claims of outstanding freight and other charges payable to the shipowner.64 Certain ports in the ownership of the state government, such as Gujarat, have similar provisions enabling a shipowner to exercise a statutory lien over the cargo.65 Notice of such a lien must be served on the consignee and the concerned port authority before the discharge of the cargo from the vessel.
Other than the right of lien under the Major Port Trust Act 1963 (see also Section VI.v), the question of whether an owner has the right of lien against the charterers and the cargo interests will depend on the lien clauses in the charter party, in the bill of lading and the incorporation clause in the bill of lading.
A shipowner can also, in principle, exercise a possessory lien over the cargo by refusing to discharge the same in the event that the party liable to pay the shipowner's dues is the owner of the cargo. The exercise of a possessory lien over cargo owned by third-party cargo interests may potentially expose the vessel to claims under the bills of lading contract.
iv Cargo claims
India does not have an equivalent of the English Carriage of Goods by Sea Act 1992, but rather follows a colonial legislation – the Indian Bills of Lading Act 1856. The Madras High Court in MT Titan Vision v. 3F Industries Ltd 66 and the Gujarat High Court in MG Forest Pte Ltd v. MV Project Workship,67 in their interpretation of Section 1 of the Indian Bills of Lading Act 1856, held that only a named consignee or endorsee would have the right to initiate a cargo claim against the carrier under the bill of lading contract. To incorporate an arbitration or dispute resolution clause, the bill of lading will be required to specify that the arbitration or dispute resolution clause is incorporated.68
In British India Steam Navigation Co Ltd v. Shanmughavilas Cashew Industries,69 the Supreme Court of India expressed the opinion that a consignee or an endorsee may be bound by the terms of the charter party terms incorporated into the bill of lading contract even when the consignee or endorsee is unaware of those terms. The Bombay High Court, in its judgment of M/s Assobhai Bhanji and Sons v. Great Circle Shipping Pvt Ltd,70 allowed a shipper's claim against a carrier for delivering cargo without production of the bill of lading even though the bill of lading had been made out 'to the order of a named consignee'.
Indian courts have the power to pass judgments in foreign currency.71 As a general rule, for commercial transactions, courts award interest at the rate at which monies are lent or advanced by nationalised banks.72 The Appeal Court of the Bombay High Court has held that an Indian arbitral tribunal can award interest at the rate of 9 per cent per annum on a claim in US dollars.73 However, in Vedanta Ltd v. Shenzen Shandong Nuclear Power Construction Co Ltd,74 the Supreme Court held that a high rate of interest on foreign currencies would be punitive in nature, and reduced the rate of interest awarded by the arbitrator to LIBOR plus 3 per cent.
In Forysthe Trading Services Ltd v. MV Niizuru,75 the contract between the bunker supplier and the shipowner provided for interest of 20 per cent per annum for late payment. The Bombay High Court disregarded the interest rate stipulated in the bunker supply contract and awarded interest of only 8 per cent per annum. The Supreme Court has held that a tribunal's award may be inclusive of interest, and the sum of the principal amount plus interest may be directed to be paid by the tribunal for the pre-award period.76
vi Limitation of liability
Carriers can limit their liability for cargo claims by way of 'package limitation' and 'kilo limitation' pursuant to the Indian COGSA and the Multimodal Transportation Act 1993. A party seeking to limit liability under the Convention on Limitation of Liability for Maritime Claims 1976 (the LLMC Convention 1976) can initiate limitation proceedings by filing an admiralty suit in the High Court.
Section 352(b) contained in Part XA of the MSA provides that 'the Convention on Limitation of Liability for Maritime Claims 1976 as amended from time to time' has the force of law in India. The Merchant Shipping (Limitation of Liability for Maritime Claims) Amendment Rules 2015 (the 2015 Rules), which came into force on 16 February 2015, gives effect to the Protocol to amend the LLMC Convention 1996 (the1996 LLMC Protocol). Under the 2015 Rules, a different unit of account applies to 'Indian ships intended for navigation in or around the coast of India' than to foreign-going vessels. The Merchant Shipping (Limitation of Liability for Maritime Claims) Amendment Rules 2017 (the 2017 Rules), which came into force on 21 February 2017, gave effect to the 2012 amendments to the LLMC Convention 1976. However, the 2017 Rules do not apply to coastal trade. This would imply Indian-flagged vessels having a licence only to trade along the coast of India would follow the 1996 LLMC Protocol, whereas seagoing vessels would follow the 2012 amendments to the LLMC Convention 1976. The amended rates are applicable to incidents that take place subsequent to the amendment coming into force.
The High Court of Bombay has held that a shipowner's right to limit liability under Part XA of the MSA is absolute and without reference to any proof of loss resulting from a personal act or omission of the shipowner.77 This decision is therefore likely to make India a favourable jurisdiction for constituting a single worldwide limitation fund, without any prior claim being initiated. However, Section 352E of the MSA sets out the scope of application of Part XA of the Act, and states that if the vessel in relation to which the limitation of liability is sought to be invoked is flagged in a country that is not party to the LLMC Convention 1976, the provisions of Part XA of the MSA will not apply and the LLMC Convention provisions will stand excluded. Interim limitation funds are not permissible under Indian law.
The International Convention on Civil Liability for Oil Pollution Damage 1969 (the CLC Convention, as amended from time to time) has been incorporated under Part XB of the MSA. A party seeking to limit liability can file an action in the admiralty court.78 Security in the form of cash or bank guarantee is permissible.
i Admiralty actions
Admiralty law has been codified as of 1 April 2018 with the coming into force of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act 2017 (the Admiralty Act), the brief ramifications of which are as follows:
- Indian ships are amenable to orders of arrest, except vessels owned or operated by the government of India and vessels registered under the Inland Vessels Act 1917.79 However, the Court of Appeal of the High Court at Calcutta has upheld the observation of the court of first instance that if the vessel has dual registration (under the Inland Vessels Act 1917 and the Merchant Shipping Act 1958), the vessel would be amenable to arrest;80
- a claimant can arrest a vessel to enforce a judgment or order;
- an express stipulation of the limited cluster of claims that are classified as maritime liens, as defined in Section 2(g) of the Admiralty Act. These maritime liens are referenced in Section 9 of the Admiralty Act, which sets out their inter se hierarchy;
- there is an express right of a plaintiff to initiate a pure action in personam for a 'maritime claim' beyond the scope of an action in rem;
- an express provision authorising the admiralty court to sell the vessel by way of a judicial auction free of all encumbrances, liens, attachments, registered mortgages and charges;
- a defined time limit of one year after which maritime liens would expire, except for seafarers' wages, which expire after two years; and
- the courts have been empowered to impose on a claimant, either as a condition to obtain an arrest or to maintain an order of arrest, an obligation to provide an undertaking to pay damages, or furnish security for damages, for any loss or damage to the shipowner as a result of a wrongful arrest or excessive security having been demanded.81
The high courts of Kerala, Madras (Tamil Nadu), Calcutta and Bombay have notified new Admiralty Rules through the respective state governments, governing admiralty actions in those courts. The Bombay High Court Admiralty Rules82 permit the arrest of cargo in place of a ship, in a suit for salvage, if there is a claim against the cargo on board the ship or ashore.
The Supreme Court of India held that a claim for necessaries supplied to a vessel would constitute a maritime claim against a vessel and not a maritime lien.83 The judgment further stated that 'arrest of a foreign ship for a maritime claim is permissible only if there is no change of ownership between the date of claim and date of arrest'.
Arrests can be moved ex parte, unless there is a caveat against arrest filed up to a reasonable contemplation of the claim with an undertaking to furnish security for the claim amount. India follows the English case of The Moschanthy,84 on the basis of which a claimant can sustain an order of arrest over a vessel merely by making out a reasonably 'best arguable' case.85 The Division Bench of the Kerala High Court has clarified that even though an admiralty suit for damages can be filed for any amount the plaintiff desires, the owner of the ship cannot be asked to furnish excessive security for an unrealistic amount, having no proximity with the actual loss.86
A party seeking release of the vessel is required to furnish security by way of either a cash deposit or a bank guarantee.87 Indian courts do not accept club letters of undertaking as security as a right, unless consented to by the plaintiff.88
In India, every company is a separate and independent legal entity; ownership of the assets vests with the company and not in its shareholders.89 Prima facie, the registered owner of the vessel is deemed the beneficial owner, save in very exceptional cases.90 Only in exceptional circumstances involving questions of public policy, fraud or malice will the courts consider piercing the corporate veil. It must be noted that the party seeking to lift the corporate veil will be required to plead and particularise fraud, malice or public policy.91
The Supreme Court of India has recognised that although a demise charterer may have absolute dominion and control over the vessel, this fact in itself would not allow a claimant to obtain an order of arrest against the vessel for an in personam claim against the demise charter relating to another vessel.92 However, a single judge of the Bombay High Court, on a bare reading of Section 5 of the Admiralty Act (which departs slightly in wording from Article 3 of the 1999 Arrest Convention), came to a conclusion that even a vessel on bareboat charter could be arrested for an unrelated third-party claim against the bareboat charterer.93
Notable judgments involving ship arrest and sale have clarified the following matters:
- In the event that bunkers are ordered by the owner (irrespective of whether the vessel is on time charter or not), the bunker supplier will be entitled to arrest a vessel on a prima facie basis.94 The Appeal Court of the Bombay High Court has held95 that an arrest granted at the prima facie stage cannot be vacated in the absence of a trial, on a rebuttable presumption of privity of contract between the actual physical supplier of bunkers and the shipowner, especially when supplies of necessities to a vessel such as bunkers have been made on faith and credit of the vessel.
- Although the earlier position was that a vessel could not be arrested for security pending arbitration in the admiralty jurisdiction of the court,96 a single judge of the Bombay High Court has held that it was permissible for a party to obtain security pending arbitration by way of an arrest in India, provided that the suit is filed praying for a decree and determination on the merits of the underlying maritime claim.97
- A claim for damages for wrongful arrest of a vessel is not a special law. Principles of mitigation will apply and the claim is subject to mitigation of losses arising from wrongful arrest of the vessel.98
- The arrest of bunkers99 or cargo without an underlying cause of action being made out against a vessel is not permitted by the Bombay High Court,100 albeit certain other high courts have allowed the same on occasions before the enactment of the Admiralty Act.
- Institution of a prior legal proceeding against the concerned vessel or its owner cannot be said to be a precondition for maintainability of a suit for constitution of funds to limit the shipowner's liability under the LLMC Convention 1976 and the 1996 LLMC Protocol.101
- Proceedings for the sale of a vessel under arrest can be taken out on expiry of three days after the date of arrest if no security or bail has been furnished.102
- 'Owner' means registered owner. The corporate veil can be lifted only in exceptional cases, such as fraud or public policy. The party seeking arrest on the basis of fraud must plead and prima facie establish that fraud has been committed.103
- There is no right vested in a shipowner against a receiver or consignee, or the shipper or charterer (unless a vessel is a party) in personam in the admiralty jurisdiction of the court.104
- In its interpretation of Section 5 of the Admiralty Act, Bombay High Court has held that multiple arrests of vessels in the fleet of a shipowner are not permissible for a single claim even if the sale proceeds of the vessel are sufficient to meet the claim of the plaintiff, though the sale proceeds of the vessel may be insufficient to meet the claims of all creditors asserting a claim against the vessel.105
- In its interpretation of Sections 4(1)(n) and 9(1)(d) of the Admiralty Act, Bombay High Court held that port dues are in the nature of a maritime lien as well as a maritime claim against the vessel.106
- Arrest of a vessel is akin to the seizure of property and thus attracts Article 80 of the Indian Limitation Act 1963, which provides for a limitation period of one year from the date of seizure (the arrest of the vessel) to lodge a claim for damages or to lodge a counterclaim.107
ii The insolvency regime
The law relating to corporate insolvencies has undergone a paradigm shift with the enactment of the Insolvency and Bankruptcy Code 2016 (the Insolvency Code). The Insolvency Code is dynamic in nature and has undergone a number of amendments to cater to the needs arising out of different situations. It recognises the 'creditor in possession' model and differs from jurisdictions that follow the 'debtor in possession' model, such as Singapore and the United States. The Insolvency Code stipulates definitive periods within which various stages of the insolvency, corporate rescue and liquidation proceedings have to be completed. The moment the National Company Law Tribunal admits an insolvency petition, a resolution professional is appointed to take over the management of the company. A committee of creditors is formed, comprising the financial creditors of the company, who then have 330 days to finalise a corporate rescue strategy, known as an 'insolvency resolution plan', failing which the company would automatically be put into liquidation. During the period when the committee of creditors is attempting to rehabilitate the company, there is a moratorium on institution of new or continuation of pending legal proceedings against the company.
To commence the corporate insolvency resolution process, the creditor would have to show that there is no pending dispute between the creditor and the debtor. Such a dispute should not be merely illusory in nature. However, the Supreme Court has clarified that this requirement is that of a pre-existing dispute (i.e., one that exists before the date of receipt of the demand notice or invoice, as the case may be).108 One issue that parties to the insolvency proceedings were facing was with regard to reaching an amicable settlement pursuant to the commencement of the corporate insolvency resolution process. The Insolvency Code was amended to allow the admitted applications for the institution of insolvency resolution process with the approval of a 90 per cent vote of the committee consisting of financial creditors of the debtor.109
The Insolvency Code envisages only two situations after the commencement of the corporate insolvency resolution process: first, formulation of a plan to continue the existence of the corporate debtor as a going concern; and second, to commence the liquidation proceedings.
Owing to the situation arising out of covid-19, the Insolvency Code was amended to forever exclude actions for initiation of an insolvency process for defaults arising after 25 March 2020 for six months or any such time prescribed by the government;110 the last of these extensions expired on 31 March 2021. This amendment was also upheld by the Supreme Court,111 although the Court clarified that the embargo would not in any manner extinguish the debt owed or the right of the creditor to recover the same.
Further, the threshold for default was increased from 1 million rupees to 10 million rupees for initiating an insolvency action. In Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund (earlier known as Kotak India Venture Limited) & Ors),112 the Supreme Court held that a dispute would not remain arbitrable after an application for insolvency resolution is admitted, as in rem proceedings are not arbitrable under Indian law. Further, the National Company Law Tribunal in Mumbai has admitted an application for initiation of insolvency process based on a foreign award from a reciprocating country113 although the position in the erstwhile regime was that such an action was not permissible.114
iii Insolvency versus Admiralty regime
In 2020,115 the Bombay High Court considered the interplay and overlap of the provisions of the Admiralty Act with the Insolvency Code and Companies Act and has unequivocally upheld the primacy of admiralty laws. The Court analysed the two regimes governing insolvency law disputes in India and held that there are no contradictions per se between the Insolvency Code and the Admiralty Act. Relevantly, the Court has set out guidelines to harmonise the two statutes and has observed, inter alia, that (1) an action in rem against a vessel will proceed in accordance with the Admiralty Act (being the applicable law), and the priorities for payment out of the sale proceeds of the vessel will also be determined in accordance with the Admiralty Act and not as per the priorities set out in the Insolvency Code and (2) the moment a ship is arrested, the plaintiff becomes a secured creditor qua the vessel and not against its owner or the assets of the owners. However, on the deposit of the security for the release of the vessel by the owners (i.e., when the action turns into an in personam action against the owners), the provisions of the Insolvency Code would apply in relation to how the matter proceeds against the owners.
However, with respect to the Companies Act 1956 (the erstwhile statute dealing with company insolvencies), the Court held that the Admiralty Act would prevail over it. This is in line with the pronouncement of the Appeal Court of the Madras High Court.116
India is a party to the Indian Ocean Memorandum of Understanding on Port State Control, which lays down basic standards for vessels calling at ports. To prevent wreckage of older foreign ships and oil spills in Indian waters, the MoS has notified the Merchant Shipping (Regulation of Entry of Ships into Ports, Anchorages and Offshore Facilities) Rules 2012, which, inter alia, provide that foreign-flagged vessels can only enter Indian territorial waters on being in possession of a Blue Card (i.e., valid insurance cover) from the International Group of P&I Clubs or from insurance companies that are specially authorised by the DG Shipping on fulfilling certain criteria. Foreign-flagged vessels entering India must be registered with a classification society that is a member of the International Association of Classification Societies.
i Registration and classification
India-flagged vessels will be registered under the MSA, the Inland Vessels Act 1917 or the Coasting Vessels Act 1838, depending on the nature and type of vessel. The Supreme Court of India, in interpreting the provisions of the MSA, has held that a provisional certificate of registry for India-flagged vessels can be granted only to a constructed vessel and not to an 'under construction' vessel and the provisional certificate will be valid for six months, within which time the shipowner must obtain a permanent certificate by ensuring that all the obligations of the Indian flag state are met.117 A central register is maintained by the DG Shipping, which contains all the entries recorded in the registers kept by the registrar at the port of registry in India. Any vessel that is registered requires a licence to trade. Vessels that are more than 25 years old require a special licence to trade.
The Customs Act 1962 imposes various obligations upon owners of vessels calling at ports in India, such as the Import General Manifest. The Central Board of Indirect Taxes and Customs has notified the Sea Cargo Manifest and Transshipment Regulations 2018 (the SCMT Regulations).118 The SCMT Regulations119 make it compulsory for shipping lines, exporters and importers to follow set timelines for submitting cargo manifests and vessel documentation and declarations for imports arriving in India and for exports out of India, and for trans-shipment via Indian ports. The SCMT Regulations are aimed at implementing entirely new procedures to which vessels either arriving into or departing from India must adhere and is a push towards a consolidated, efficient and more transparent platform to ease the procedural formalities of the entire end-to-end logistic chain. Under these Regulations, advance intimation must be given of vessel and cargo arrivals and departures. All commodities and cargo will be identified by unique identifiers and standard formats of declarations are provided.120
ii Environmental regulation
India has ratified the CLC Convention and its 1976 and 1992 Protocols. Part XB of the MSA deals with civil liability for oil pollution damage, and Part XC was introduced to incorporate the requirements of the International Oil Pollution Compensation Fund (the IOPC Fund). When an oil spill occurs from two or more ships as a result of an accident, the owners of all ships are jointly and severally liable for all damage that is not reasonably separable.121
India is the second-highest global contributor to the IOPC Fund, at 13.12 per cent of the total composition of the fund. The IOPC Fund is under an obligation to pay compensation to states and persons who suffer pollution damage if those persons are unable to obtain compensation from the owner of the ship from which the oil escaped or if the compensation due from the shipowner and protection and indemnity (P&I) club is not sufficient to cover the damage suffered.
Although India is a party to the aforementioned conventions, in the first case of its kind, the National Green Tribunal, under the powers given to it by the Environment (Protection) Act 1986, directed the cargo interests to deposit 1 billion rupees following the oil spill caused by the MV Rak Carrier.122
iii Collisions, salvage and wrecks
The International Regulations for Preventing Collisions at Sea 1972 (COLREGs) have been incorporated into Indian law under the Merchant Shipping (Prevention of Collisions at Sea) Regulations 1975. Although, in principle, Indian courts have the power to apportion liability between two vessels in accordance with the degree of fault, there have been very few instances when they have proceeded to do so. There is no precise formula to measure the degree of negligence of a party under Indian law and the courts have a considerable amount of discretion based on abstract notions of justice and equity.123 Section 345(1)(a) of the MSA provides that in an event where it is not possible to establish different degrees of fault, the liability shall be apportioned equally. In these circumstances, liability between two vessels in a collision would be apportioned equally unless it is ex facie evident that the degree of fault of one vessel was palpably higher than the other.
The law in India with respect to shipwrecks is laid down in Part XIII of the MSA and in the Indian Ports Act 1908. The term 'wreck' includes 'a vessel abandoned without hope or intention of recovery'. India is in the process of giving effect to the Nairobi International Convention on the Removal of Wrecks 2007 into domestic law, but at present there is no legal regime to deal with the removal of wrecks in the exclusive economic zone of India. In Oil & Natural Gas Corporation Ltd v. Osprey Underwriting Agencies Ltd,124 the Bombay High Court, in interpreting Section 14 of the Indian Ports Act, directed a foreign P&I club and its Indian agents to deposit the cost of removing and raising the wreck in the Indian court. However, it should be noted that the Bombay High Court, inter alia, dealt with a dispute between the assured and the P&I club.
Sections 402 to 404 of the MSA provide the salvor with the right to claim salvage services. Kerala High Court, in Commander KP Shashidharan v. Union of India,125 allowed an officer of the Indian Coast Guard to claim salvage services even though he already had a duty to protect life and property at sea.
iv Seafarers' rights
India has ratified the Maritime Labour Convention 2006 (MLC) and made amendments to the MSA to give effect to the provisions thereof. In the exercise of the powers conferred by Section 218A read with Section 457 of the MSA, the Indian government promulgated the Merchant Shipping (Maritime Labour) Rules 2016 (the MLC Rules), which, inter alia, cast an obligation on a vessel's financial security provider for unpaid wages for up to a maximum of 120 days and repatriation expenses in the case of abandonment by the shipowner. The DG Shipping has further issued a notice to ensure that Indian seafarers on India-flagged vessels have clear and unambiguous terms in their employment contract in terms of the provisions of the MLC (as amended).126
The Merchant Shipping (Recruitment and Placement of Seafarers) Rules 2016127 have overhauled the earlier regime set up under the 2005 Rules, and has placed greater responsibility, liability and obligations on the recruitment and placement service providers (RPSL agents). Under these Rules, an RPSL agent has to provide a bank guarantee to the DG Shipping, to ensure that the rights of seafarers are protected and that seafarers would be compensated for any monetary loss arising out of the breach of the obligations of the RPSL agent or the shipowner under the seafarer's employment agreement.
The Supreme Court of India held that a foreign seafarer's right to wages falls within the ambit of a fundamental right to life and liberty under Article 21 of the Constitution of India.128 Indian courts are likely to be guided by the general standard agreement between the National Union of Seafarers of India and the Indian National Shipowners' Association, as an overwhelming majority of contracts of employment on board a vessel incorporate these terms.
Indian law recognises the rights of an injured seafarer or the family members of a deceased seafarer to claim compensation for injury or death of the seafarer. The Employees' Compensation Act 1923 (ECA) is a general legislation that allows workers or employees to claim compensation for death and personal injury of seafarers. However, the ECA would not apply to Indian seafarers working aboard foreign-flagged vessels. Under Indian law, foreign seafarers cannot be employed on India-flagged vessels unless they obtain prior permission from the DG Shipping.
v The Major Port Authorities Act 2021
With the exception of 12 designated 'major ports', all ports in India are owned and controlled by state and union governments. The governments of Gujarat, Maharashtra and Tamil Nadu have enacted legislation to set up autonomous maritime boards that own and operate ports and formulate parameters for the collection of tariffs in their respective states. In a number of recent cases, port authorities have entered into concession agreements with private terminal operators under the Build, Own, Operate and Transfer (BOOT) Policy designed for private sector participation in the development of Indian ports. In these circumstances, a private terminal operator levies a port tariff on ships calling at the port.
The Tariff Authority for the Major Ports (TAMP) is a regulatory body, or quasi-judicial authority, that deals with the levy of port tariffs such as berthing charges and anchorage charges on ships calling at the 12 major ports. However, the TAMP model is due for a major overhaul; the Major Port Authorities Act 2021 (the Ports Act) is due to repeal The Major Port Trusts Act 1963.129 The Ports Act will bring about a sea change in the functioning of the 12 major ports in India by setting up a Major Port Authority and giving it autonomy to conduct its business and promote the development of the major ports, enter into public-private partnership and lease out port property and terminals for third parties to develop and run. The Ports Act will also retain the right of the master or the shipowner to exercise statutory lien on the cargo for freight and other charges payable to the shipowner.
The Supreme Court of India has held130 that major ports cannot place the liability for payment of port storage or demurrage charges for uncleared cargo or containers lying in port premises on the shipowners, vessel agents or steamer agents after the port has taken charge of the goods and given a receipt for the same. Unfortunately, there is no regulatory authority for ports other than the 12 major ports and this has resulted in a number of litigations relating to the arbitrary conduct of private terminal operators levying tariffs on ships calling at these ports.
vi The Recycling of Ships Act
As a party to the International Maritime Organization, India has adopted the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships 2009 (the Hong Kong Convention) and in an effort to bring the Indian regulations in line with the Hong Kong Convention, has enacted the Recycling of Ships Act 2019 (the Ship Recycling Act).131 The Act seeks to establish an authority that will maintain and record the business of ship recycling conducted in India, including the registration of new ships built in India (for their hazardous material), surveys conducted prior to the breaking of the vessel and the registration of ship recycling facilities. The Ship Recycling Act also prescribes the penalty for offences as imprisonment or a fine, or both.
vii The Cabotage Regime
Unlike the Jones Act regime of the United States or the domestic cabotage legislation of China, India does not have a regime that bars foreign players from operating in the Indian market and instead has a right of first refusal regime wherein an Indian shipowner is given an opportunity to match the price quoted by a foreign shipowner to the Indian charterer. In these circumstances, it would be open for an Indian charterer to charter a foreign-flagged vessel in the event no Indian shipowner is able to match the bid quoted by the foreign shipowner. Under the present regime, the DG Shipping would first circulate an enquiry with the Indian National Shipowners Association (INSA) – a private body of Indian shipowners – on whether an Indian shipowner could provide a vessel with similar characteristics at the same or a lower freight rate as that quoted by the foreign shipowner. It is only when INSA issues a 'no objection certificate' that a licence is issued to the Indian party to charter a foreign-flagged vessel. Insofar as coastal trade goes, a no objection certificate would have to be provided by the Indian Coastal Conference (ICC).
On 21 May 2018, the MoS issued General Order No. 1 of 2018, whereby restrictions on foreign-flagged vessels undertaking a coastal voyage from one Indian port to another have been relaxed for the carriage of empty containers. Additionally, if export-import containers intended for trans-shipment are loaded onto a vessel, no licence will be required under Section 407 of the MSA for that vessel to undertake the coastal voyage from one Indian port to another. This regime is still in force and seeks to reduce India's dependence on foreign trans-shipment terminals in ports such as Colombo, Singapore, Port Klang and Jebel Ali, which currently account for about one-third of India's trans-shipment cargo.
In an attempt to bolster its Make in India policy and add stimulus to the shipbuilding industry in India, the government issued a circular on 14 January 2021 (effective from 16 January 2021) and a further clarificatory circular dated 11 February 2021, which has completely revamped the cabotage regime in India (the New Right of First Refusal (RoFR) Regime).132
Under the New RoFR Regime, the exercise of the RoFR will be available in the following hierarchy:
- first priority: India-built, India-flagged and India-owned
- second priority: foreign-built, India-flagged and India-owned
- third priority: India-built, foreign-flagged but foreign-owned.
All India-flagged vessels registered in India up to midnight on 15 January 2021 (irrespective of whether they are India-built or foreign-built) shall be deemed to be India-built and thus first priority (see point (a), above). Further foreign-flagged vessels permitted to be chartered by an Indian entity by the DG Shipping under Section 406 of the MSA, as a temporary substitute for a vessel being built in an Indian shipyard for registration under the India flag, shall be deemed to be an India-built vessel and thus first priority, provided that (1) 25 per cent of the contract money has been paid to an Indian shipyard and (2) 50 per cent of the hull fabrication has been completed, as may be certified by a recognised organisation. However, the duration of the licence provided by the DG Shipping to such chartered vessels will be limited to the period of construction of the ship as per the shipbuilding contract.
viii Satellite devices, ammunition and drones banned in Indian waters
There have been incidents in which foreign crew members were arrested for using satellite devices, such as Thuraya or Iridium phones, within Indian territorial waters. The use of such satellite devices is banned in India by the DG Shipping.133 Even if a foreign-flagged vessel possesses all the valid documents permitting her to carry satellite phones, the Indian authorities have the right to deny permission to use them. These satellite phones can be used only after a 'no objection certificate' is obtained from the Department of Telecommunications. There have been instances when crew members accused of using such banned devices in Indian territorial waters have been arrested and detained in India pending a full trial of the offence and where vessels have been detained for their failure to provide proper declarations.
The carriage of arms and ammunition has created further complications for vessels calling into an Indian port following an incident involving the MV Seaman Guard Ohio, a foreign-flagged floating armoury, which had been arrested in India for entering Indian waters. The Madurai Bench of the Madras High Court134 exonerated 35 foreign seafarers on board.
A foreign crew member was arrested for the use of a drone in a restricted area within port limits of India and was charged under Section 10(2) of the Aircraft Act 1934, which provides for a maximum punishment of two years' imprisonment and a fine of up to 1 million rupees. Subsequently, the Indian Ministry of Civil Aviation has introduced the Unmanned Aircraft System Rules 2021135 and has designated areas prohibiting the use of drones, including notified port limits identified by the government beyond the territorial waters of India. The punishment under the new Rules for contravention has been reduced to a fine of 50,000 rupees.
Indian maritime and commercial laws have undergone substantial changes with the enactment of a plethora of legislation and amendments in areas such as arbitration, admiralty, insolvency and tax. Moreover, India has taken proactive steps to improve its maritime presence in the world with a focus on updating legislation such as the Major Port Authorities Act, the Recycling of Ships Act, the Merchant Shipping Bill 2016 and the Code on Social Security 2020. The thrust towards bringing the legal and regulatory environment up to speed with legislative developments in other countries is a welcome development. It is also heartening to note that India jumped 14 places in the 'Ease of Doing Business' rankings published by the World Bank in Doing Business 2020 to 63 and has improved its rank by 79 positions in the past five years. Nevertheless, it remains to be seen how stakeholders react to the entire gamut of legislation affecting the shipping industry.
1 Amitava Majumdar (Raja) is the managing partner, Damayanti Sen is a principal associate, and Anuj Dhowan, Pabitra Dutta, Rishabh Saxena and Ruchir Goenka are senior associates at Bose & Mitra & Co.
2 Budget 2021-2022: Speech by Nirmala Sitharaman, Minister of Finance, February 2021, available at https://www.indiabudget.gov.in/doc/Budget_Speech.pdf (last accessed 22 April 2021).
3 Notification No. 04/2020 – Integrated Tax (Rate) dated 30 September 2020; Section 12(8) of the Integrated Goods and Services Tax Act 2017 has been amended to provide that the point of service for transportation of goods to a place outside India will be the place of destination of those goods.
4 The Maritime India Vision 2030 document is accessible at https://static.investindia.gov.in/s3fs-public/2021-03/MIV%202030%20Report.pdf (last accessed 23 April 2021).
5 The dedicated portal launched by the Ministry of Shipping, Government of India can be accessed at https://maritimeinvest.in/investment-oppurtunities (last accessed 23 April 2021).
6 The specified value is currently fixed at 300,000 rupees.
7 Commercial Courts Act 2015, Section 12A. However, in Ganga Taro Vazirani v. Deepak Raheja, 2021 SCC OnLine Bom 195, the Bombay High Court held that the requirement for pre-institutional mediation under Section 12A of the Act was procedural in nature and could be deemed to be waived by a party by its conduct. The Court observed that in a situation where the parties attempted to resolve the disputes but failed, driving them to mandatory mediation would run contrary to the aims and objectives of the Commercial Courts Act (i.e., a speedy remedy for disputes).
8 Commercial Courts Act 2015, Section 16 read with Clauses 4(A) and 4(D) of the Schedule.
9 M/s SCG Contracts India Pvt. Ltd v. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors., C.A. No. 1638 of 2019.
10 Reliable Spaces Pvt Ltd v. Evonik India Pvt Ltd (Commercial Arbitration Petition No. 1019 of 2019, judgment dated 19 October 2020); Sanjay Soya Private Limited v. Narayani Trading Company (Interim Application (L) No. 5011 of 2020, judgment dated 9 March 2021); Rajnish Steels and Ors v. MV Golden Pride and Anr. (Interim Application (L) No. 7724 OF 2021, judgment dated 24 March 2021).
11 Code of Civil Procedure 1908, Section 20.
12 Modi Entertainment Network and Anr v. WSG Cricket Pte Ltd, AIR 2003 SC 1177.
13 Hari Shanker Jain v. Sonia Gandhi, AIR 2001 SC 3689.
14 Malaysian International Trading Corpn v. Mega Safe Deposit Vaults (P) Ltd, 2006 (3) Bom C R 109.
15 Indian Contract Act 1872, Section 28.
16 Arbitration Act 1996, Section 9.
17 Steel Authority of India v. AMCI Pty Ltd (2011) 3 Arb LR 502; Goodwill Non-Woven (P) Limited v. Xcoal Energy & Resources LLC (OMP (I) (COMM) 120/2020, judgment dated 9 June 2020); BMW India Pvt. Ltd and Ors v. Libra Automotives Pvt. Ltd and Ors, 261(2019) DLT 579; Essar House Private Limited v. Arcellor Mittal Nippon Steel India Ltd, 2021 SCC Online Bom 149; Valentine Maritime Ltd v. Kreuz Subsea Pte Ltd & Anr, 2021 SCC Online Bom 75.
18 Essar House Private Limited v. Arcellor Mittal Nippon Steel India Ltd, 2021 SCC Online Bom 149; Valentine Maritime Ltd v. Kreuz Subsea Pte Ltd & Anr, 2021 SCC Online Bom 75.
19 Crystal Sea Shipping Company Ltd v. Bostomar Shipping Pte Ltd & Ors (I.COM.A.O.A. No. 1 of 2021; Order dated 5 March 2021 passed by Andhra Pradesh High Court) and Crystal Sea Shipping Company Ltd v. Bostomar Shipping Pte Ltd & Ors (AP No. 136 of 2021, Order dated 11 March 2021 passed by Calcutta High Court).
20 Arbitration Act 1996, Section 45 applies to foreign-seated arbitrations and deals with the power of a judicial authority to refer parties to arbitration.
21 (2013) 1 SCC 641.
22 Arbitration Act 1996, Section 8.
23 MV Nicoloas A v. Indian Farmers Fertilizers Cooperative, 2017 SCCOnLine Guj 2149.
24 M.R. Engineers & Contractors (P) Ltd v. Som Datt Builders Ltd (2009) 7 SCC 696.
25 BGS SGS SOMA JV v. NHPC Ltd, 2019 (17) SCALE 369.
26 2021 SCC Online SC 331.
27 Arbitration Act 1996, Fifth and Seventh Schedules.
28 Perkins Eastman Architect DPC v. HSSC (India) Ltd, 2019 SCC Online SC 1517.
29 Haryana Space Application Centre (HARSAC) and Another v. M/s Pan India Consultants Pvt. Ltd (2021) 3 SCC 103.
30 Sawarmal Gadodia v. Tata Capital Financial Services Limited and Ors, Arbitration Petition No. 560 of 2019.
31 Arbitration Act 1996, Section 23.
32 ibid., Section 29A.
33 ibid., Section 36(3).
34 ibid., Section 36(2).
35 Board of Control for Cricket in India v. Kochi Cricket Private Limited & Ors (2018) 6 SCC 287.
36 Kishore Shah and Ors v. Urban Infrastructure Trustees Ltd, Commercial Arbitration Petition No. 1435 of 2019, judgment dated 14 December 2020.
37 Civil Appeal No. 3631 of 2019 (arising out of Special Leave Petition (Civil) No. 9213 of 2018).
38 NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd, 2021 SCC Online SC 13.
40 Transocean Shipping Agency Pvt. Ltd v. Black Sea Shipping & Ors (1998) 2 SCC 281.
41 Bharat Aluminium Co. v. Kaiser Aluminium Technical Services (2012) 9 SCC 552.
42 Fuerst Day Lawson Ltd v. Jindal Exports Ltd (2001) 6 SCC 356.
43 2018 SCC Online SC 2549.
44 2020 SCC Online SC 749.
45 Oil and Natural Gas Corporation v. Western Geco International Ltd (2014) 9 SCC 263 and Associate Builders v. Delhi Development Authority (2015) 3 SCC 49.
46 2020 SCC Online SC 177.
47 2020 SCC Online SC 479.
48 2020 SCC Online SC 381.
49 See footnote 44, above.
50 Code of Civil Procedure 1908, Section 44A.
51 International Woollen Mills v. Standard Wool (UK) Ltd, AIR 2001 SC 2134; Dan Bunkering Limited v. PFS Shipping India Limited, 2018 (5) ABR 116.
52 Civil Appeal No. 2175 of 2020 (judgment rendered on 17 March 2020).
53 Civil Application (OJ) No. 250 of 2015.
54 2007 (3) ARBLR 46 Delhi.
55 Company Petition No. 67 of 2013.
56 Tiruvenibai v. Lilabai, AIR 1959 S.C. 620.
57 Base International Holdings NV Hockenrode 6 v. Pallava Hotels Corporation Ltd, 1999 PTC (19) 252.
58 Guidelines for Implementation of Shipbuilding Financial Assistance Policy (2016-26), Schedules II and III. The online platform in respect of shipbuilding is at https://www.shipbuilding.nic.in/ (last accessed 23 April 2021).
59 Specific Relief Act 1963 (as amended), Section 14.
60 (2008) 2 SCC 79.
61 British India Steam Navigation Co. Ltd v Shanmughavilas Cashew Industries and Ors (1990) 3 SCC 481.
62 Collis Line Private Ltd v. New India Assurance Co. Ltd, AIR 1982 Ker 127.
63 Fateh Chand v. Balkishan Dass, AIR 1963 S.C. 1405; Oil & Natural Gas Corporation Ltd v. Saw Pipes Ltd, 2003(5) SCC 705; Finolex Industries Limited v. MV Kew Bridge, 2014 (7) Bom CR 261.
64 Major Port Trust Act 1963, Section 60.
65 Gujarat Maritime Board Act 1981, Section 48.
66 (2014) 2 MLJ 154.
67 Misc. Civil Application No. 187 of 2003 in Admiralty Suit No. 14 of 2003.
68 MV 'Baltic Confidence' v. The State Trading Corporation of India Ltd (2001) 7 SCC 473.
69 (1990) 3 SCC 48.
70 (2018) 2 AIR Bom R 252. However, this judgment is pending appeal.
71 Forasol v. Oil & Natural Gas Commission, 1984 SCR (1) 526; and Forysthe Trading Services Ltd v. MV 'Niizuru', 2004 (5) Bom CR 806.
72 Code of Civil Procedure 1908, Section 34.
73 Steel Authority of India Ltd v. Pacific Gulf Shipping Co. Ltd, Appeal No. 391 of 2013.
74 (2018) SCC Online 1922.
75 2004 (5) Bom CR 806. See footnote 71, above.
76 Hyder Consulting Ltd v. State of Orissa (2015) 2 SCC 189.
77 Murmansk Shipping Company v. Adani Power Rajasthan Ltd & Ors, Admiralty Suit No. 43 of 2012 (decided on 8 January 2016).
78 For an Indian-registered ship, in the high court of the state in whose port the vessel is registered, or where the incident occurs. For foreign ships, at the port or place within the territorial waters of which the vessel is present.
79 Joao Martin Fernandes v. The Union of India and Ors, Appeal No. 65 of 2017 (decided on 24 October 2018).
80 Jindal ITF Limited & Anr v. I-Marine Infratech (India) Pvt. Ltd (APO 160 of 2020, GA 1 of 2020, AS 5 of 2020 before the Calcutta High Court.
81 Navbharat International Ltd v. Cargo on board MV 'Amitees', 2014 (5) Bom CR 312.
82 Chapter LX of the Bombay High Court Original Side Rules 1980, Rules for Regulating the Procedure and Practice in Cases Brought Before the High Court Under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act 2017.
83 Chrisomar Corporation v. MJR Steels Private Ltd, 2017 SCC Online SC 1104.
84  1 Lloyd's Rep 37.
85 Videsh Sanchar Nigam Limited v. MV 'Kapitan Kud' (1996) 7 SCC 127.
86 Sangita Das & Ors v. MV Amber L and Ors (2018) 1 KLT 836.
87 Security can be deposited in US dollars in the Bombay High Court, Gujarat High Court and High Court of Andhra Pradesh at Amravati.
88 Stephen Commerce Pvt. Ltd v. Owners and Parties in Vessel MT 'Zaima Navard', AIR 1999 Cal 64. However, the parties can agree to a letter of undertaking as security, which could be accepted by the courts.
89 Lufeng Shipping Company Ltd v. MV 'Rainbow Ace', 2013 (4) ABR1412.
90 Universal Marine & Anr v. MT 'Hartati', Notice of Motion No. 1080 of 2013 in Admiralty Suit No. 77 of 2012, dated 11 February 2014.
91 Code of Civil Procedure 1908, Order VI, Rule 4.
92 Sunil B. Naik v. Geowave Commander, 2018 SCC Online SC 203 (Geowave Commander).
93 Siem Offshore Redri AS v. Altus Uber, 2018 (6) ABR 361. This judgment was upheld by the Court of Appeal in Altus Uber v. Siem Offshore Redri AS (2019) 5 Bom CR 256. This is now under appeal before the Supreme Court of India on, inter alia, the ground that it is contrary to the findings of the Supreme Court in Geowave Commander.
94 Gulf Petrochem Energy Pvt. Ltd v. MT 'Valor' in Notice of Motion (L) No. 581 of 2015 in Admiralty Suit (L) No. 94 of 2015 and Drop Energy Services Ltd v. MT 'Tradewind' in Notice of Motion No. 805 of 2015 in Admiralty Suit No. 240 of 2015.
95 Socar Turkey Petrol Enerji v. M.V. Amoy Fortune, 2018 SCC Online Bom 1999.
96 Rushab Ship International LLC v. The Bunkers on board MV African Eagle, 2014(4) Bom CR 269.
97 See footnote 93, above.
98 Lufeng Shipping Co Ltd v. MV 'Rainbow Ace' and Ors, Notice of Motion No. 1646 of 2013 in Admiralty Suit No. 29 of 2013.
99 Peninsula Petroleum Ltd v. Bunkers on board the vessel MV 'Geowave Commander', Notice of Motion No. 385 of 2014 in Admiralty Suit No. 85 of 2014.
100 Global Integrated Bulkers Pte Ltd v. Cargo of 14,072.337 MTS of Limestone (Judge's Order No. 253 of 2017 in Comm. Admiralty Suit (L) No. 665 of 2017.
101 See footnote 77.
102 Coromandel International Limited v. MV 'Glory I' and Andromeda Ship Holdings Ltd, 2014 (3) ABR 365.
103 See footnote 89.
104 M/s. Greenwich Meridian Logistics (India) Pvt. Ltd v. M/s. Sapphire Kitchenware Pvt. Ltd, Admiralty Suit 31 of 2008 of Bombay High Court and MUR Shipping BV Amsterdam v. Al Gyas Exports Private Ltd.
105 Praxis Energy Agents SA v. M.T. Prathibha Neera, 2018 (4) ABR 148.
106 State of Goa v. Sale Proceeds of vessel M.T. Pratibha Bheema and Ors, A.S. No. 72 of 2014 (decided on 7 June 2018).
107 M.V. Tongli Yantai and Ors v. Great Pacific Navigation (Holdings) Corporation Ltd, NoM No. 2202 of 2015 in CC 19 of 2012 in AS. No. 3 of 2011 & NoM No. 1770 of 2015 in AS. No. 66 of 2015 (decided on 17 September 2018). An appeal to a higher bench of the Bombay High Court was withdrawn pursuant to a settlement between the parties.
108 Transmission Corporation of Andhra Pradesh Limited v. Equipment Conductors and Cables Limited (2019) 12 SCC 697.
109 Insolvency and Bankruptcy Code 2016, Section 12A.
110 The Insolvency and Bankruptcy Code (Second Amendment) Act 2020, No. 17 of 2020, Section 2 (with effect from 5 June 2020).
111 Ramesh Kymal v. Siemens Gamesa Renewable Power (P) Ltd (2021) 3 SCC 224.
112 2021 SCC Online SC 268.
113 Agrocorp International Pvt Ltd v. National Steel and Agro Industries Ltd, CP (IB) No. 798/MB/C-IV/2019 dated 9 June 2020.
114 Marina World Shipping Corporation Ltd v. Jindal Exports & Imports Private Ltd, 2007 (3) ARBLR 46 Delhi.
115 Raj Shipping Agencies v. Barge Madhwa and Anr, 2020 SCC OnLine Bom 651. This judgment of the Bombay High Court is presently under appeal to the Supreme Court of India, which issued Notice on 14 September 2020 [see Sudip Bhattacharya and Anr v. Barge Madhwa, SLP (C) No. 9384/2020 and SLP (C) No. 9388/2020].
116 Pratibha Shipping Company Ltd v. Praxis Energy Agents SA (Unreported) Dt. 9 August 2019 in OSA Nos. 20, 317 to 349, 363 and 264 of 2018 & W.A. Nos. 738 to 751 of 2013.
117 Halliburton Offshore Services Inc. v. Principal Officer of Mercantile Marine Department, Civil Appeal No. 5428 of 2017.
118 Notification No. 38 /2018-Customs (N.T.) dated 11 May 2018.
119 The enactment of the Sea Cargo Manifest and Transshipment [SCMT] Regulations supersedes the Import Manifest (Vessels) Regulations 1971, Export Manifest (Vessels) Regulations 1976 and Transportation of Goods (Through Foreign Territory) Regulations 1965.
120 Notification No. 44/2021-Customs (N.T.) dated 15 April 2021 deferred the date of implementation of the SCMT Regulations to 31 May 2021.
121 MSA, Section 352I(4).
122 Samir Mehta v. Union of India & Ors, 2017 SCC Online NGT 1314), This is under appeal before the Supreme Court of India.
123 Municipal Corporation of Greater Bombay v. Laxman Iyer, 2003(8) SCC 731.
124 1998 (2) BOMLR 179.
125 AIR 2002 Ker 388.
126 Merchant Shipping Notice 7 of 2020 dated 24 April 2020.
127 G.S.R. 169(E) dated 15 February 2016.
128 O Konavalov v. Commander, Coast Guard Region (2006) 4 SCC 620.
129 At the time of writing, the Major Port Authorities Act 2021 has obtained presidential assent and was gazetted on 18 February 2021 but is yet to be notified and the provisions thereof are not yet in force.
130 The Chairman, Board of Trustees, Cochin v. M/s Arebee Star Maritime Agencies Private Ltd & Ors, 2020 SCC Online SC 622.
131 Recycling of Ships Act 2019 gazetted on 16 December 2019.
132 The New RoFR Regime supersedes a notification dated 13 February 2019 and a consequent circular dated 22 March 2019 (together, the Proposed RoFR Regime) in which an Indian-built foreign-flagged vessel was given preference over a foreign-built India-flagged vessel. The Delhi High Court had stayed the operation of the Proposed RoFR Regime by an interim order dated 28 March 2019 in The Great Eastern Shipping Company Limited v. Union of India and the Proposed RoFR Regime was thereafter withdrawn suo moto by the government vide the notification dated 20 July 2020 issued by the Ministry of Shipping and Vide DG Shipping Circular 31 of 2020 dated 7 August 2020.
133 Vide Order No. 2 of 2012 (48-NT(1)/2012).
134 Dudnik Valentyn and Ors v. The Inspector of Police, 'Q' Branch CID, Crl. A. (MD) Nos. 41, 43, 44 of 2016.
135 Unmanned Aircraft System Rules 2021, Ministry Of Civil Aviation Notification dated 12 March 2021, G.S.R. 174(E).