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 nidhiladha@vinodkothari.com]
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).

Analysis

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

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • "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 !

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