Control of Indian Ships - Statutory and Executive Order


  1. With its vast coastline of over 5560 kms., 11 major ports and several intermediate and minor ports, shipping occupies an important position in the country's trade and commerce. The Second World War demonstrated in unmistakable terms the need for harnessing the transport resources of a country to meet the situation created by a war. It was, therefore, necessary to have some control over Indian ships.

  2. The basic objectives of India's shipping policy since independence have been:

    1. To reduce the dependence of external sea borne trade on foreign shipping services;

    2. To safeguard the imports of essential supplies especially POL, for the national economy;

    3. To reserve 100% coastal trade for national flag vessels;

    4. To ensure adequate provision of shipping services to meet the requirements of the national trade;

    5. To improve the balance of payments position through import substitution and export of shipping services; and

    6. To develop merchant fleet, to act as a second line of defense to protect India's maritime interest and preserve its channels of communication.

  1. To safeguard the basic policy objectives of Indian shipping, it is necessary to have some control over Indian shipping. Under the Indian law, the provisions relating to control of Indian ships are enumerated in Part XIV of the Merchant Shipping Act. The control over Indian Ships is exercised both by legislation as well as by executive orders.

The present position of the control of Indian ships is exercised as under: -

    1. By a licensing system so that tonnage employed on a particular route is just that which is optimum and not more;

    2. By issue of executive orders putting some restraint on the movement of ships;

  1. The licensing system envisages that an Indian ship or a ship chartered by a citizen of India or a company is not permitted to be taken to sea from a port or place in India except under a license granted by the Director General of Shipping or any officer authorized by Government in this behalf.

  1. The coasting trade of India is exclusively reserved for Indian ships and for this purpose a ship chartered by a citizen of India or a company which satisfied the requirements laid down in section 21 of the M. S. Act, 1958 will be deemed to be an Indian ship. A foreign ship is not allowed to ply in the coasting trade of India except under a license granted by an officer authorized to issue it.

  2. The categories of licenses, the form in which they are to be preferred by parties, conditions, subject to which they may be issued and their validity period, where applicable are all laid down in the M. S. (Forms of Licenses) rules. The categories of licenses contemplated are:

    1. General License;

    2. A license for the whole or any part of the coasting trade of India; or

    3. A license for a specific period or voyage.

  3. The Director General of Shipping may, if the circumstances of the case so require, in his discretion, revoke or modify a license granted to a party subject however to the condition that the party in whose favor a license may have been so issued is given a reasonable opportunity to represent against such revocation or modification as the case may be.

  4. Licenses, which cease to be valid, are to be made over or cause them to be made over, within a reasonable time, to the Director General Of Shipping for cancellation.

  5. A duty has been cast on the Customs Collectors not to grant port clearance to ships which are required to take out licenses under Part XIV of the M. S. Act, 1958.

  1. In the case of an Indian ship or a ship chartered by a citizen of India or a company, Director General of Shipping has powers to give directions with respect to all or any of the following matters:

      1. The ports or places, whether in or outside India, to which, and the routes by which, the ship shall proceed for any particular purpose;

      2. The diversion of any ship from one route to another for any particular purpose;

      3. The classes of passengers or cargo which may be carried in the ship; and

      4. The order of priority in which passengers or cargo may be taken on or put off the ship at any port or place whether in or outside India.

In the exercise of this power, Director General of Shipping will have to satisfy that it will be in public interest or in overall interest of Indian shipping to give such directives.

    1. Similar power exist under the Act which enables Director General of Shipping to give more or less similar directions to ships other than Indian ship or ships chartered by a citizen of India or a company.

  1. Chartering: - The Director General of Shipping exercises control over the chartering of (a) foreign ships by Indian companies and (b) foreign ships by Indian parties. Charter transactions involving foreign exchange outgo are being cleared by an arrangement arrived at with the Reserve Bank of India. There are now two main classes of charter -

    1. Charters of foreign vessels by Indian shipping companies for employment in the overseas trade.

    2. Charter of foreign ships for lifting export cargoes.

The prescribed guidelines for clearing charter applications and objectives are detailed below: -

  1. Charters of foreign vessels by Indian shipping companies for employment in the overseas trade - to ensure that

    1. No Indian ship is available for the purpose of such time charter and the charter of a foreign vessel is considered necessary to supplement the existing vessels employed by the Indian shipping companies in the particular trade.

    2. The charter hire rates agreed to be paid by the charters to the owners of the foreign vessels are per se reasonable, having regard to the market condition.

    3. The foreign earnings on the transport of cargo after deducting the charter hire and other payments in foreign exchange during the period of time charter of the foreign vessel would result in the net contribution to the country's foreign exchange pool.

  2. Charter of foreign ships for lifting export cargoes - to verify that -

    1. No Indian vessel is available for transport of the cargo in question

    2. Charter rates are reasonable

    3. The freight rate on the transport of the cargo after deducting the charter hire and other payments in foreign exchange would result in net saving of foreign exchange. For this purpose, f.o.b value of the goods to be exported is to be kept out of consideration altogether and thus a charter would be worthwhile only if there is net saving as compared to freight charters hire payable.

The main aim in all cases is to ensure that:

      1. A foreign ship is allowed to be chartered if a suitable Indian ship is available for that purpose at reasonable charter rates;

      2. The charter hire rate are reasonable having regard to the market conditions;

      3. The net result of granting permission to the proposed charter should be a saving or a earning of foreign exchange greater than if the permission were not granted.

As a general policy, time charters are allowed only to Indian shipping companies operating owned ships.

Requests for charter permission are required to be made in the prescribed pro forma (Annex-7 and Annex-8)

  1. Liberalization in shipping

In order of promote development of Indian shipping a new shipping policy was initiated in 1990-91 and several policy measures were taken thereafter in that direction for the development of the industry. The salient features of the same are:

  1. Automatic approval is now given for:

    1. Acquisition of all categories of ships, except crude tankers and OSVs, by private shipping companies.

    2. Acquisition of replacement tonnage.

    3. Foreign investment upto 51% for mechanized sailing vessels upto 10,000 dwt.

    4. Approval for other ship acquisition within 45 days.

    5. For sale of ships for further trading/scrapping to Indian company within India or abroad.

    6. For acquisition of ships from an Indian shipyard.

  1. In order to attract foreign mainline vessels Cabotage laws have been relaxed for a period of 5 years for container traffic and lash barges i.e. upto 1997.

  2. Quarterly Block Allocation Scheme (QBAS) for repair of ships has been dispensed with entirely and Reserve Bank of India now release foreign exchange for ship repair / dry docking and spares for imported capital goods without any value limit.

  3. The steps taken by the Government for increasing the earning of the shipping industry:-

    1. Shipping companies have been permitted to retain sale proceeds of Indian ships abroad and their utilization for fresh acquisition.

    2. Freedom to time charter out Indian ships to foreign shipping companies for employment in international trade.

    3. It has been decided to allow a shipping company to acquire vessels by charter cum demise method (similar to hire purchase system).

    4. Liner routes on which the exiting shipping companies are not operating have now been thrown open to all Indian shipping companies.

      Section 51 of the M.S. Act has recently been amended to facilitate the Indian shipping companies to raise foreign exchange loans from abroad by mortgaging their vessels with money lender. This amendment would also give freedom to the mortgagee to receive the amount due to him by selling mortgaged ship or share without approaching the High Court.

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