11 July, 2017
The Ministry of Corporate Affairs, Government of India has again extended the exemption granted to Vessels Sharing Agreements (VSA) of Liner Shipping Industry from the provisions of Section 3 (i.e., anti-competitive agreements) of the Competition Act, 2002 (as amended) (Act) for a period of one year, with effect from 20 June 2017 (VSA Exemption). The VSA Exemption applies to carriers of all nationalities operating ships of any nationality from any Indian port as long as such agreements do not include concerted practices involving fixing of prices, limitation of capacity or sales and the allocation of markets or customers.
When first introduced on 19 September 2012, the exemption was initially applicable for a period of one year – i.e., until 18 September 2013 – and exempted both VSAs and Voluntary Discussion Agreements (VDA) entered into by shipping companies from the application of the entire Act. At the time of the first extension of the VSA Exemption, its applicability was restricted to VSAs and the carve out was introduced in relation to concerted practices involving fixing of prices, limitation of capacity or sales and the allocation of markets or customers as stated above. Thereafter, the VSA Exemption was renewed annually for a period of one year until 1 March 2017.
This extension comes as a big respite to the shipping industry given that the VSA Exemption was last extended on 21 March 2017 for a limited period of three months, until 20 June 2017, as opposed to the more typical one-year-extension trend. This led to the shipping industry speculating that the VSA Exemption might be discontinued following its expiry on 20 June 2017.
The recently extended VSA Exemption now requires the persons responsible for operating such ships in India, to file with the Director General of Shipping (DG Shipping) copies of existing VSAs or VSAs that are proposed to be entered into until 19 June 2018 along with other relevant documents. This must be done within 30 days of the publication of notification in the Official Gazette, i.e., 20 June 2017, or within ten days of signing of such agreements, whichever is later. This additional requirement would be the first instance where the DG Shipping would collect and possibly review agreements for anti-competitive conduct transpiring between shipping companies in India.
The need for introducing the VSA Exemption arose as a result of the nature of the shipping industry, which is highly capital intensive, and the realisation that sharing container space on liner ships provides greater efficiencies in relation to connectivity and frequency of ships between any given origin and destination port pairs. Moreover, the VSA exemptions result in greater participation by small and medium shipping companies leading to increased competition in the industry.
Historically, VSAs have been exempt from the application of competition laws in several jurisdictions such as the United States, European Union, Australia, Singapore, New Zealand, etc. However, over the years such exemptions or immunities have been revised on account of the evolving nature of the shipping industry. Accordingly, VSA exemptions have transformed, internationally, from blanket exemptions to being restrictive/ limited in their scope of application. It is therefore likely that the future of the VSA Exemption in India may also compass a similar course.
For further information, please contact:
Anshuman Sakle, Partner, Cyril Amarchand Mangaldas
anshuman.sakle@cyrilshroff.com
