Monday, October 1, 2012

Ministry’s move to exempt shipping sector from the lens of Competition Act

[The following post is contributed by ACS Nidhi Ladha, who is a partner at Vinod Kothari & Co. She can be reached at]
The Competition Act 2002 [as amended by Competition (Amendment) Act, 2007] (the “Act”) supercedes the erstwhile MRTP Act and codifies a present-day competition law in India. The Act plays a twin role of making void all anti-competitive agreements and regulating combinations fulfilling the conditions specified in Section 5 of the Act. One cannot abuse a dominant position which affects competition in India. Previously, the provisions relating to regulation of combinations were not notified by the Government, and the same has recently been enforced with effect from March 4, 2011.
Section 5 of the Act prescribes the conditions when an arrangement/agreement shall be treated as ‘combination’ under the Act and accordingly, the parties are to fulfill their obligations which inter-alia includes notifying the Competition Commission constituted under the Act (the “Commission”) and obtaining prior approval in some cases. Even after much opposition, the ministry had notified the merger regulations under the Act in 2011, however, keeping it open to exempt industries from time to time as and when required.
The first move of Ministry in granting relaxation to specific industries has already been attempted, and the first candidate is the shipping industry! Recently, in late September of 2012, by exercising its power under Section 54 of the Act, the Ministry has put in place the draft guidelines[1] exempting the Shipping Industry from the applicability of the provisions of the Act for one year (“Draft Guidelines”) and has invited public comments.

Features of Draft Guidelines

If one looks at the agreements that ship liners enter into, they are illegal under section 3 of the Act. The agreements, which include fixing freight rates and other charges like terminal handling charges, bunker adjustment factors and currency adjustment factors, actually fall under price fixing cartels, which are per se illegal under the Act. 
As per the Draft Guidelines, the Vessel Sharing Agreement (VSA) and Voluntary Discussions Agreement (VDA) (collectively referred to as the “Agreements”) as entered by the Shipping Industry, whether Indian or Foreign parties, shall be exempted from the application of the provisions of the Act for a period of 1 year from the date of the publication of Guidelines in the Gazette of India. Though the intimation to or approval of the Commission shall be relaxed, all relevant documents pertaining to the Agreements shall be required to be submitted with Directorate General of Shipping (DG-Shipping).

After Effects of the Guidelines

It seems that the Ministry will be issuing the final Guidelines also on trial basis as the Draft Guidelines contain a provision relating to making further amendments or withdrawal of exemption after seeing the performance/effects of such agreements during the year of relaxation. If the exempted Agreements would affect competition adversely, such exemption will be withdrawn after due consultation with Directorate General of Shipping (DG-Shipping).


The relaxation to shipping industry is surely a welcome step of the Ministry. The Ministry has given time till October 3, 2012 to submit the views/comments on the Draft Guidelines after which the Guidelines are expected to come soon in the Official Gazette. As insisted by the Reserve Bank of India, the Commission had earlier sought to exempt the banking sector from the purview of the Act. The insurance sector is also likely to demand a similar exception after the grant of exemption to shipping industry. We have to wait and watch the result of Ministry’s efforts!

- Nidhi Ladha

1 comment:

vswami said...

"If the exempted Agreements would affect competition adversely, such exemption will be withdrawn....."
Impromptu (simply sharing, for clarifying one's own thoughts):
One is not clear as to what is sought to be conveyed ! The point in one's mind is - why and how any such exemption could affect 'competition' adversely; obviously, what could happen is, any such ill-conceived exemption would either impact adversely or undermine a 'healthy competition' (NOT all COMPETIOTIONs AS SUCH). Further, what is 'healthy competition' or not itself is well-nigh impossible to differentiate between, that too objectively; in the absence of any clear-cut norms or guidelines -both in the extant law and the modified new code.
As one looks at it, all these measures, if at all, have the twin objectives of preventing / obviating abuse of 'dominant position' and the inevitable consequence of such abuse,- being. 'unhealthy competition'. For the sake of clarity, and better understanding, more so for successful implementation / enforcement as far as feasible, in drafting the subject or like legislation, one feels strongly that, in order to serve or sub-serve underlying objectives, instead of adopting the historically used /conventionally chosen same old drawing board, invariably leading to clumsiness, a more mindful exercise would have made for a welcome departure. It would have been, in one’s conviction, desirable had an attempt been made to inter alia explain , through suitably worded / precise definitions, of the essential concepts – ‘dominant position’, ‘abuse of’, ‘competition’ and ‘healthy competition’ as envisaged.
Over to ‘experts’, -having any worthy contribution to come out with on such areas requiring a fruitful debate !