Exemption to Vessel Sharing Agreements From The Competition Act in India: Another Indian Provision Full of Ambiguities?

[Akash Anurag & Aman Gupta]

 

The authors are 4th and 3rd year students respectively of NLU, Jodhpur

Introduction

The Ministry of Corporate Affairs (hereinafter referred to as the MCA) through a notification dated July 4, 2018 has granted a 3 year extension to the already existing exemption to Vessel Sharing Agreements[i] (hereinafter referred to as VSA) from the purview of Section 3 of the Competition Act,2002[ii], which deals with anti-competitive agreements. Section 3 (2) of the Competition Act, 2002 declares any form of anti-competitive agreement to be void in law[iii]. The granting of the exemption to VSAs in India means that such agreements are not anti-competitive within the meaning of the Competition Act, 2002 and thus not void in law in India. However, the grant of the exemption to VSAs in India comes with shortcomings of its own, especially when compared to the exemption granted to Vessel Sharing Agreements or agreements of the same nature in different parts of the world.

Meaning of a Vessel Sharing Agreement

Before going into details of the exemptions granted to Vessel Sharing Agreements in India and in different jurisdictions of the world it is important to know as to what a Vessel Sharing agreement means. Vessel Sharing Agreements are not defined under the provisions of any law applicable in India. Vessel Sharing Agreements also known as Liner Shipping Agreements in certain jurisdictions can be defined as”an agreement between 2 or more vessel-operating carriers which provide liner shipping services pursuant to which the parties agree to co-operate in the provision of liner shipping services in respect of one or more of the following-

1. technical, operational or commercial arrangements
2. prices
3. remuneration terms[iv]“.

Exemption to Vessel Sharing Agreements From The Competition Act in India

It was in the year 2013 that the Ministry of Corporate Affairs for the first time using the powers conferred upon it by Section 54 (a) of the Competition Act[v] exempted Vessel Sharing Agreements from the purview of Section 3 of the Competition Act, 2002 for the period of an year[vi]. The MCA notification exempted all Vessel Sharing Agreements in Liner Shipping with respect to carriers of all nationalities operating ships of any nationality from any Indian port. The exemption subsequently was thereafter given on a yearly extension at the end of every previous extension. However, the practice changed in 2018 when the extension so granted by the MCA was for the next 3 years[vii].

The 2018 notification for the extension of the exemption from Section 3 differs from the original notification for the exemption in an important sense (the basic difference between the two notifications being the time period of the exemption from the purview of Section 3) as the same provides for reasons due to which the Government may decide to rescind the exemption so granted under the notification. The Government may choose to rescind the exemption if any complaint for fixing of prices, limitation of capacity or sales and allocation of markets or customers comes into notice[viii].

The European Theatre with Respect to Competition Law Exemptions to Vessel Sharing Agreements.

It is at this juncture that it becomes very important to analyze the European state of affairs with respect to the exemption of Vessel Sharing Agreements from Competition Law in the European Union. Under the legal regime in the European Union, all agreements that restrict competition in the market are banned under the provisions of Article 101 (1)[ix] and Article 101 (2)[x]of the Treaty on the Functioning of the European Union ( hereinafter referred to as the TFEU). However, the Consortia Block Exemption Regulation[xi] (hereinafter referred to as the CBER) allows shipping lines with a combined market share of below 30%[xii] to enter into cooperation agreements to provide joint cargo transport service (known as the consortia or the consortium), hence saving such agreements from the purview of anticompetitive agreements as contemplated under Article 101 (1) of the TFEU. Such an exemption to Article 101 (1) is provided under the CBER on the ground that the agreement between such shipping lines should contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits without the elimination of competition[xiii].

The Consortia Block Exemption Regulation (under which the exemption period is 5 years) will expire on 25 April 2020. Thus, it was in June, 2018 that the European Union launched a review of the five year container shipping block exemption that is due to expire in the year 2020. It is on the basis of this review by the European that it will decide in the year 2020 with respect to the extension of the exemption.

Arguments in the Favour of Competition Law Exemptions to Vessel Sharing Agreements

One of the most contemplated advantages of giving block exemption to the consortium shipping companies/ Vessel Sharing Agreements under the various legal regime is that the same would help in improving the productivity and quality of the available liner shipping services[xiv]. It is often contemplated that the Consortium of Liner Shipping Companies and Vessel Sharing Agreements will also bring about Economies of Scale and Economies of Scope in the operation of vessels and port utilization[xv]. They also help to promote technical and economic progress by facilitating and encouraging greater utilisation of containers and more efficient use of vessel capacity[xvi].Thus, its often argued vehemently by liner shipping companies operating in various jurisdictions of the world that Vessel Sharing Agreements. in the greater good of the economy and towards the furtherance of the objective of Public Welfare should be exempted from the purview of the respective competition acts operating in different countries.

Arguments against Extension of Competition Law Exemptions to Vessel Sharing Agreements

However, in a sharp contrast with the arguments of the Shipping Councils in defence of the extension of the Vessel Sharing Agreements, a number of groups of Shippers Association have raised very serious concerns with respect to the further extension of the exemption. For instance, in Europe. their major discontentment with the state of affairs under the current consortium regime is based on the fact that the service reliability under the present scheme of things is at just 70% despite the block exemption being in effect for 8 years on the continent[xvii]. Similar concerns with respect to service quality, possibility of increased prices [xviii]and possible monopolisation have been raised by Shippers from all over the world. Thus, they have called for a very critical review of the scenario before any further exemptions are granted to Vessel Sharing Agreements or Ship Agreements of the similar nature.

 An Arrow in the Dark – Blatant Ambiguities in The Indian Exemption To Vessel Sharing Agreements and Suggestions In the Ends of Strengthening the Sail of Indian Shipping Industry Towards Success

It is heavily argued by the supporters of the exemption on Vessel Sharing Agreements in India that such an exemption allows for the sharing of container space on liner ships thereby providing greater efficiencies with respect to connectivity and frequency of ships between the ports[xix]. It is also argued that apart from increasing the efficiency of services, Vessel Sharing Agreements also result in greater participation by small and medium shipping companies[xx] leading to increased competition in the industry.

However, the present scheme of the exemption granted to Vessel Sharing Agreements in India is very ambiguous and thus leaves a volley of important questions unanswered. Unlike the European Union[xxi], Hong Kong[xxii] and Singapore[xxiii], the relevant notifications of the MCA from time to time have never defined and still do not define as to what a Vessel Sharing Agreement/Line Agreement/Consortium Shipping Agreements means with respect to the exemption that is granted under the Competition Act. Thus, in the absence of any such definition it is difficult to ascertain as to what types of agreements and what ingredients with respect to sharing of vessels are exempted from the purview of Section 3of the Competition Act, 2002.

Further, the notification do not set up any criteria like the block exemption in the European Union (Combined market share of not more 30%)[xxiv] or the exemptions to Vessel Sharing Agreements in Hong Kong (Combined Market Share of not more than 40%)[xxv] and Singapore (Aggregate Market Share of not more than 50%)[xxvi] with respect to the qualification of the parties (in terms of market shares) who wish to enter into a Vessel Sharing Agreement thereby adding to the already existing ambiguity talked about above. This obscurity in the MCA notifications leaves open huge possibility for the monopolisation of the Ship Carrier Market in India as there do not exist no restrictions in the form of maximum market shares in the notifications.

Moreover, it is also not clear from the wordings of the notifications that have come out till date as to whether the said exemptions are applicable or not to Vessel Sharing Agreements with respect to carriage movement in domestic waterways.

Thus, it is important that for the proper and efficient administration of the exemptions to the VSA agreements, the Government needs to clarify the above mentioned ambiguities. This is very vital towards improving the efficiency of India’s shipping Industry. In order to clear the ambiguities, a much needed help and reference can be made to block exemptions as well as vessel sharing agreement exceptions in different jurisdictions of the world such as the European Union, Hong Kong, Singapore etc. only to name a few. These jurisdictions have a well-defined mechanism to administer anti-competitive regulations. Exemptions granted by these jurisdictions are concrete and subject to certain specific conditions and obligations[xxvii]. Taking a cue from its often blotted past where many policies and similar exemptions have failed on the grounds of inefficient administration and ambiguity, the Government of India needs to address the above stated ambiguities in the exemptions under the Indian Competition Laws with respect to Vessel Sharing Agreements. Otherwise, the results can be quite catastrophic or the policy to exempt Vessel Sharing Agreements may just another novel step taken by the Indian Government which could not achieve the desired results due to its own non clarities and ambiguities.

 

 

 

 

[i] The Gazette of India (E) No. 2497, The Ministry of Corporate Affairs, July 4, 2018,

http://egazette.nic.in/WriteReadData/2018/187087.pdf (The Government of India).

[ii] § 3, The Competition Act, 2002, https://indiankanoon.org/doc/1153878/ (The Union of India).

[iii] § 3 (2), The Competition Act, 2002, https://indiankanoon.org/doc/1153878/ (The Union of India).

[iv] Paragraph 3(1), The Competition (Block Exemption For Liner Shipping Agreements) Order, G.N. No. S

420/2006, The Competition and Consumer Commission of Singapore, https://sso.agc.gov.sg/SL/CA2004-OR1 (Singapore).

[v] § 54 (a), The Competition Act, 2002, https://indiankanoon.org/doc/907407/ (The Union of India).

[vi] The Gazette of India (E) No. 2753, The Ministry of Corporate Affairs, December 11, 2013,

http://egazette.nic.in/WriteReadData/2013/157316.pdf (The Government of India).

[vii] Supra Note No. 1.

[viii] Supra Note No.1.

[ix] The Treaty on the Functioning of the European Union (TFEU), 2007, Art. 101 (1),

https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E101:EN:HTML (The European Union)

[x] The Treaty on the Functioning of the European Union (TFEU), 2007, Art. 101 (2),

https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E101:EN:HTML (The European Union).

[xi] The Consortia Block Exemption Regulation, The European Union,

https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32009R0906.

[xii] Article 5 (1), Commission Regulation (EC) No. 906/2009, The European Commission, September 28, 2009,

https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32009R0906.

[xiii] Antitrust: Commission invites comments on future regime for liner shipping consortia, The European Union, September 27, 2018, http://europa.eu/rapid/press-release_IP-18-5921_en.htm

[xiv] COMMISSION REGULATION (EC) No 906/2009 of 28 September 2009 on the application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia), Official Journal of the European Union, September 29, 2009, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32009R0906&from=EN.

[xv] The Impact of Alliance in Container Shipping, OECD, November 2, 2018, https://www.itf-oecd.org/impact-alliances-container-shipping.

[xvi] Supra Note No. 14.

[xvii] Greg Knowler, European Commission to review ocean carrier block exemption, JOC.com, June 13, 2018, https://www.joc.com/maritime-news/container-lines/european-commission-review-ocean-carrier-block-exemption_20180613.html

[xviii] P. Manoj, Shippers Wary as India exempts vessel sharing pacts from anti – trust law, Livemint, Dec 27, 2013, https://www.livemint.com/Opinion/d5qWrgwTzOKlKMdF0b7rjM/Shippers-wary-as-India-exempts-vessel-sharing-pacts-from-ant.html .

[xix] Anshuman Sakle, Neelambera Sandeepan & Ruchi Verma, Extension of Competition Law Exemption to Vessel Sharing Agreements, Competition Law (A Cyril Amarchand Mangaldas Blog), July 12, 2018,

https://competition.cyrilamarchandblogs.com/2018/07/extension-competition-law-exemption-vessel-sharing-agreements/#more-2109

[xx] Anshuman Sakle and Bharat Budholia, Relief to Shipping Industry as Indian V.S.A. Exemption is Extended, Competition Law (A Cyril Amarchand Mangaldas Blog), June 29, 2017,

https://competition.cyrilamarchandblogs.com/2017/06/relief-shipping-industry-indian-vsa-exemption-extended/#more-1961.

[xxi] Article 2, COMMISSION REGULATION (EC) No 906/2009 of 28 September 2009 on the application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia), Official Journal of the European Union, September 29, 2009, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32009R0906&from=EN.

[xxii] Paragraph 5, The Competition (Block Exemption for Vessel Sharing Agreements) Order, 2017, The Competition Commission (Hong Kong), https://www.compcomm.hk/en/media/press/files/Block_Exemption_Order_and_Guidance_Note_final.pdf.

[xxiii] Supra Note No.4.

[xxiv] Article 5 (1), Commission Regulation (EC) No. 906/2009, The European Commission, September 28, 2009, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32009R0906.

[xxv] Paragraph 8 (a), The Competition (Block Exemption for Vessel Sharing Agreements) Order, 2017, The Competition Commission (Hong Kong), https://www.compcomm.hk/en/media/press/files/Block_Exemption_Order_and_Guidance_Note_final.pdf.

[xxvi] Paragraph 4(1), The Competition (Block Exemption for Liner Shipping Agreement) Order, G.N. No. S 420/2006, The Competition and Consumer Commission of Singapore (Singapore), https://sso.agc.gov.sg/SL/CA2004-OR1.

[xxvii] P. Manoj, Shippers Wary as India exempts vessel sharing pacts from anti – trust law, Livemint, Dec 27, 2013, https://www.livemint.com/Opinion/d5qWrgwTzOKlKMdF0b7rjM/Shippers-wary-as-India-exempts-vessel-sharing-pacts-from-ant.html.