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Chartering foreign flag vessels — Cross-currents over old notification, order

P. Manoj

CONFUSION prevails in the Government over the issue of whether the permission of the Director-General of Shipping is required for chartering of foreign flag vessels by domestic entities other than public sector undertakings. Domestic private charterers need to get the permission of the national maritime regulator for chartering foreign vessels for which the DG (Shipping) charges Rs 20,000 for a voyage charter not exceeding one month and Rs 25,000 for a time charter not exceeding 90 days.

The confusion has been caused by the unearthing of a 1963 Gazette notification, which liberated charterers from this stipulation.

Reads the June 29, 1963 Gazette Notification issued by Mr B. P. Srivastava, Deputy Secretary, Transport Wing, Department of Transport, in the then Ministry of Transport and Communications: "In exercise of the power conferred by the proviso to Sub-Section 1 of Section 406 of the Merchant Shipping Act, 1958 (44 of 1958), the Central Government hereby exempts foreign flag ships trip/voyage chartered by a citizen of India or a company from the provisions of the said Sub-Section, provided that nothing in this notification shall apply to such ships which are engaged in the coasting trade of India."

However, the Shipping Secretary, Mr D. T. Joseph, told Business Line that chartering of foreign flag vessels required DG (Shipping) permission as the 1963 Gazette Notification was amended through a Ministry order in July 1964 which was re-affirmed in March 1970. "But the amendment pertained only to chartering of foreign flag ships for lifting export cargoes. We are checking whether similar orders were issued by the government around that time for import cargoes also," Mr Joseph said. The 1963 Gazette Notification does not talk about chartering of foreign flag vessels for lifting export/import cargoes and is considered a blanket exemption for both.

Shipping Ministry officials now believe that something must have happened between the 1963 Gazette Notification and the 1964 Ministry order which is difficult to unearth given the fact that the government does not keep files beyond ten years.

On July 2, 1964, the government delegated powers to DG (Shipping) and outlined the procedure for chartering of foreign ships for lifting export cargoes. An order issued by Mr J. V. Dass, Under Secretary, Transport Wing, Ministry of Transport, said: "It has been decided in consultation with the Ministry of Finance that the procedure under which the DG (Shipping) has been authorised to exercise full powers to consider and approve proposals for chartering of foreign vessels for the export of goods from this country should be further continued till 30 June, 1965."

Such powers will be contingent upon no Indian vessel being available for transporting the cargo and the charter rates being reasonable.

Subsequently, on March 24, 1970, Mr Jaswant Singh, Under Secretary, Transport Wing, Ministry of Transport, issued an order extending this working arrangement for "an indefinite period, until further orders."

Apart from the fact that these two Ministry orders relate only to delegation of powers to the DG (Shipping) for chartering of foreign vessels for lifting export cargoes, observers say that a Gazette Notification cannot be amended through a Ministry order. "A Gazette Notification can be amended or modified only through another Gazette Notification," a government official said. About five years back, the Government had dispensed with the system of authentication of freight rates for exports by the DG (Shipping) at the instance of the Commerce and Finance Ministries. "The practice of certifying the reasonableness of freight rates for exports by the regulator was scrapped after exporters complained that this was acting as a hindrance to exports," a government official said.

This system is now being followed only for import cargoes.

Still, the DG (Shipping) believes that the regulator's permission is needed for chartering foreign ships, but admits that the Ministry's orders of 1964 and 1970 authorising the DG (Shipping) to exercise full powers to consider and approve proposals for chartering of foreign vessels for export of goods was "confusing". Says Mr Naresh Salecha, Senior Deputy Director General of Shipping: "We are trying to find out what happened between 1963 and 1964 for the Ministry to issue an order in July 1964 delegating powers to DG (Shipping) for chartering of foreign ships only for lifting export cargoes."

But Mr Salecha also pointed out that the 1963 Gazette Notification referred only to foreign flag ships chartered on a trip/voyage basis.

"It does not talk about multiple trips or multiple voyages, leave alone foreign vessels hired on time charter basis. This can be interpreted to mean that hiring of foreign ships on long-term time charter basis would require permission from DG (Shipping)," he noted.

Mr Joseph feels that domestic charterers would not approach the DG (Shipping) seeking permission to charter foreign vessels by paying approval fees if they were certain that such a permission was not required as per the law of the country.

"Why would they approach the regulator if such a stipulation was not there. In my opinion, the 1964 and 1970 orders made it clear that chartering of foreign flag ships required permission from the DG (Shipping)," he stated.

Yet another view is that permission from the regulator (after the 1963 notification) was required for chartering foreign vessels for the purposes of the erstwhile Foreign Exchange Regulation Act (FERA). In the FERA regime, all dollar remittances required the RBI approval after getting clearances from designated competent authorities.

For the shipping sector, the central bank had designated DG (Shipping) as the competent authority for chartering of foreign ships and for dollar remittances. One of the main responsibilities given to DG (Shipping) under the FERA regime was to certify the "competitiveness and reasonableness" of the freight/charter hire rates paid to foreign ship owners to check the possibility of over-remittances.

When the Foreign Exchange Management Act (FEMA) superceded FERA, this requirement was removed, making it redundant. Under FEMA, prior RBI approval is not required for freight/charter hire remittances to foreign ship owners. This is now freely permitted under current account transactions", a leading ship owner said. "Since RBI approval for dollar remittances towards freight/charter hire rates has been dispensed with under FEMA, permission from the DG (Shipping) for chartering foreign ships is also not needed in view of the 1963 Gazette notification."

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