Contributed By Mulla & Mulla & Craigie Blunt & Caroe
There is no specific law for maritime finance in India. Depending on whether or not it is a cross-border transaction, ship-finance transactions in India are regulated by various legislations, viz. the Foreign Exchange Management Act, 1999 and the rules and regulations issued thereunder; the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002; the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; the Transfer of Property Act, 1882; the Merchant Shipping Act, 1958; the Banking Regulation Act, 1949, etc.
As stated in 1.1 Draft of Maritime Finance Law, above, while there is no specific maritime finance law in India, the term maritime finance entity would generally refer to the party financing a maritime project.
While there is no specific maritime finance law in India, an entity undertaking a maritime project would be subject to maritime finance.
A maritime finance project involves the financing of ships, shipbuilding, port construction, shipyards, wind/solar power generation projects and containers.
In order to make a maritime project eligible to receive fiscal incentives, it must comply with the following conditions:
Exemption from customs and central excise duties is available on all raw materials and parts used in the manufacturing of ships, vessels, tugs, pusher crafts, fishing vessels and warships. All profits and gains derived from maritime projects, such as port development, inland waterways and ports, or navigational sea channels, are tax-deductible for a period of any ten out of 15 years.
Similarly, an Indian shipping company is entitled to opt for being taxed on its corporate income and pay corporate income tax, or opt for being taxed under the Tonnage Tax Scheme (TTS) and pay tax based on the net tonnage of the entire fleet of vessels under operation or use by the company.
No labour incentives are available for a maritime finance project.
No immigration incentives are available for a maritime finance project.
Since there is no separate concept of maritime finance entity, the entities that finance maritime projects are required to obtain all necessary licences and registration specific to their nature. For instance, a bank has to obtain a banking licence.
While the concept of a maritime finance authority does not exist in India, the Reserve Bank of India, Ministry of Shipping, Directorate General of Shipping and Mercantile Marine Department regulate maritime finance transactions in India.
As stated above, no labour and immigration incentives are available. As far as fiscal incentives are concerned, while there is no expiry date for such incentives, legislation is subject to review and amendments from time to time.
India has acceded to LLMC 76. In 2002, the Merchant Shipping Act, 1958 (MSA) was amended to incorporate the provisions of LLMC 76.
India has acceded to LLMC 76 with the 1996 protocol.
As indicated in our response to 2.1 LLMC 76 and 2.2 1996 Protocol above, India has acceded to LLMC 76 and even amended the MSA to bring it in lines with the convention.
The time bar for filing a limitation of liability action is three years.
A shipowner (or salvor where appropriate) may limit liability in respect of the following claims:
The following types of claims are not subject to limitation of liability:
There is no provision in the MSA corresponding to Article No 4 of LLMC 76, which restricts a person from limiting liability in the case of intentional reckless conduct or fault. In the case of Murmansk Shipping Company v Adani Power Rajasthan Ltd, the Bombay High Court held that the shipowner’s right to limit liability was absolute, irrespective of fault.
This makes India a favourable jurisdiction for shipowners to constitute a single worldwide limitation fund.
The amount to which the shipowner may limit his liability is determined in accordance with LLMC 76. In cases where LLMC 76 is not applicable, the limit shall be in accordance with the Merchant Shipping (Limitation of Liability for Maritime Claims) Rules, 2015 (LLMC Rules 2015), as amended from time to time.
As per the LLMC Rules 2015, limits are as follows:
Where the amount calculated in accordance with point 1 (in respect of claims for loss of life or personal injury) is insufficient to pay the claims mentioned therein in full, the amount calculated in accordance with point 2 shall be available for payment of point 1, and such unpaid balance shall rank rateably among other claims under point 2.
The limit of liability for any salvor not operating from any ship or for any salvor operating solely on the ship to, or in respect of which, he or she is rendering salvage services, shall be calculated according to a tonnage of 1,500 tons.
Lastly, in respect of claims arising on any distinct occasion for loss of life or personal injury to passengers of a ship, the limit of liability of the shipowner shall be an amount of SDR175,000 multiplied by the number of passengers the ship is authorised to carry, as according to the ship’s certificate.
The limitation cannot be broken except for the claims set out in our response to 2.6 Claims not Subject to Limitation of Liability above. In India, the shipowner’s right to limit his or her liability is absolute and cannot be broken, even if the owner is guilty of reckless conduct.
As per Section 352C of the MSA, the High Court to which application has been made by the shipowner to limit his or her liability shall determine the amount of that liability and require him or her to deposit such amount with the court, or produce a bank (or other acceptable form of) guarantee in respect of such amount.
Hence, bank guarantees are acceptable to constitute the limitation fund and other guarantees are permitted at the discretion of the relevant High Court.
As stated in our response to the previous question, it is at the sole discretion of the High Court whether or not to accept the P&I Clubs’ LOUs.
Once the limitation fund has been constituted, no person entitled to claim against it may exercise any right against any other assets of the owner in respect of his or her claim against the fund, if that fund is actually available for the benefit of the claimant.
An order for sale may be made pendente lite or after adjudication of the plaintiff’s suit. The court may make an order for sale of a vessel if the following conditions are fulfilled:
Once an order of judicial sale is passed by the courts, upon an application filed by a maritime claimant, the court will direct the sheriff to appoint a surveyor to appraise the vessel and to widely advertise the sale in local and international shipping newspapers (eg, Lloyd’s List, Tradewinds), inviting bids at the auction.
Both parties assist the sheriff in finalising the advertisement and the terms and conditions of sale. The advertisement generally sets out the detailed description of the vessel(s), the date of inspection thereof by prospective bidders, the earnest money deposit (EMD), the last date of placing a bid and the date of the auction.
Usually, the reserve price, which is the appraised value of the ship, is specified in the press advertisement so as to attract offers that will be on a par with or above said appraised value.
Appraisal is the official valuation of the ship by a court-appointed surveyor/valuer, used to ensure the ship is not sold for much under its current depreciated value. The sheriff conducts the auction proceedings and cannot sell the ship for less than the appraised value without an order from the court.
The court generally directs the sheriff to appoint a firm of reputed surveyors (from the High Court’s panel of surveyors/valuers) on being satisfied of the maritime claimant’s application for sale of the vessel or on the recommendation of the applicant. The surveying firm appointed by the sheriff submits its appraisal report to the court in a sealed envelope.
In a judicial sale, the court may allow at least three rounds of bidding if in the first two rounds no bidder offers a bid or the reserve price is not achieved.
There is no strict requirement for minimum bids. However, the court may confirm the sale even if only one bid is higher than the reserve price, and the court is satisfied that the amount bid is reasonable and that the auction has been conducted fairly and in compliance with the procedure.
However, if in the first round of judicial sale there is only one bid and the same is lower than the reserve price, the court will direct the sheriff to re-advertise the auction to invite more bidders. The court may also direct the sheriff to revise the reserve price. If by the third round there are no new bids, the court may confirm the sale to the original bidder.
All prospective bidders must complete a form setting out their bids along with the proof of payment of the necessary EMD in a sealed envelope, which will be held by the sheriff until the date of the auction. A reserve price will be fixed at the auction. All the bids will be opened at the auction. The highest bid (which must necessarily match the reserve price) will be deemed to be successful.
The court, then being satisfied that the price offered is reasonable, will declare the highest bidder to be successful. The court will direct the highest bidder to deposit the balance purchase price with the court within a stipulated timeframe. It will also direct the admiralty registrar to execute a bill of sale in favour of the successful bidder upon confirmation of the balance purchase price.
The judge of the Admiralty Court may at its discretion conduct an open auction among parties who have deposited bank drafts equal to the reserve bid.
If no party comes forth, there will be a re-auction with the same procedure but a lower reserve bid.
The prospective bidder may appear in person with or without an attorney, or act through a constituted attorney. If the prospective bidder is nominating any person to bid on their behalf, such person should possess a proper letter of authority from the prospective bidder.
The prospective bidder must follow the procedure laid down in the terms and conditions of sale. The prospective bidder shall attend the offices of the sheriff personally or through a constituted attorney and pay the EMD as specified in the advertisement. If there is more than one vessel being auctioned, bidders will be required to pay the EMD for each vessel.
Each bidder will be required to place their bid in a sealed envelope, along with the proof of the earnest money deposited with the sheriff. The prospective bidder(s) will be given permission to inspect the vessels on the dates in the advertisement upon making the necessary application to the sheriff. Arrangements and costs for such inspection will be made and borne completely by the bidder.
The court-accepted bidder is generally permitted to deposit the balance purchase by means of swift remittance into the sheriff’s account within ten to 15 days from the confirmation of the sale by the court. Failure to do so may result in the EMD being forfeited and the vessel being re-auctioned. The timeline for paying the balance amount is usually mentioned in the terms and condition of the sale.
The applicant/petitioner themselves can bid at the auction with the prior permission of the court.
Arrest expenses are generally borne by the maritime claimant, ie the arrester, and are recoverable as sheriff’s costs and expenses. The bidder is identified to be successful only if the bid matches the reserve price determined by the court.
In the circumstances where the bids received are lower than the reserve and do not cover arrest expenses, the court may at its discretion refuse to sell the vessel(s).
India is not a party to the Convention on Carriage of Goods by Sea
India has enacted the Indian Carriage of Goods by Sea Act, 1925 (COGSA), which is the substantive law in India on the subject of carriage of goods by sea and was enacted to recognise and give effect to the Hague Rules 1924. COGSA was amended in 1993 by the Multimodal Transportation of Goods Act, 1993 to give effect to the amendments to the Hague Rules. Other legislations which may apply in relation to cargo claims include the Indian Bills of Lading Act, 1856, Major Port Trusts Act, 1963, Marine Insurance Act, 1963, Indian Contract Act, 1872, Sale of Goods Act, 1930, Indian Penal Code, 1860, Transfer of Property Act, 1882 and MSA.
Cargo claims can be enforced by seeking principles of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 and instituting proceedings.
Procedural aspects of claims are covered in the Civil Procedure Code, 1908 and the Evidence Act, 1872. Apart from these legislations, judgments of various courts in India lay down general principles of maritime law for dealing with cargo claims and other matters.
COGSA applies to carriage of goods by sea under bills of lading, or similar documents of title, from a port in India to any other port in or outside India.
The substantive rights recognised by COGSA are of equal application to foreign merchant ships as to Indian merchant ships.
A bill of lading evidences a contract of carriage.
The contracting parties in a carriage of goods by sea contract are the shipper and the carrier.
The carrier can claim against the shipper for all losses, damages and expenses arising or resulting from inaccuracies in the marks, number, quantity and weight as furnished by the shipper at the time of shipment of the cargo.
The shipper can be sued for cargo claims.
COGSA defines the carrier to include the owner or the charterer who enters into a contract of carriage with a shipper.
Any loss or damage to or in connection with any goods constitutes a maritime claim. Hence, if there is a claim relating to cargo, the ship may be arrested.
Cargo claims give rise to a right in rem and are not classified as maritime lien under Indian admiralty law.
A claimant can sue in tort.
Under the admiralty law of India, Himalaya clauses in bills of lading have been well recognised.
As per the provisions of COGSA, the following immunities are available to the carrier:
Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding SDR1,001 per package or unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.
Burden of proof: to bring a cargo claim in India, the claimant must establish that goods of a certain quantity in good and sound condition were handed over to the ship or carrier for carriage, and that the same was discharged and received by the consignee not in the like quantity or order and condition.
It would then be up to the ship or carrier to establish beyond reasonable doubt with evidence that the loss and damage complained of was not caused by the ship or carrier, or that the ship or carrier is exempt from any liability on account of the available statutory defences.
Notice of loss or damage requirements: the notice of loss or damage requirements and the general nature of such loss or damage should be given in writing to the carrier or his or her agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage. The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection.
As per the provisions of COGSA, the limitation period for filing a suit thereunder is one year from the date on which the goods were delivered or ought to have been delivered.
The one-year time period, as mentioned above, may be extended by agreement between the parties after the cause of action has arisen.
Courts in India recognise the validity of jurisdiction and choice of law clauses contained in a bill of lading, provided at least one of the parties to the transaction is non-Indian. A contract in which all the parties are Indian cannot be subject to foreign law or jurisdiction of foreign courts.
Marine accidents in waterways are covered under the following laws, regulations and statutes:
The term ‘waterways’ has been defined in the Inland Waterways Authority of India (Classification of Inland Waterways in India) Regulations, 2006 under Section 2(c) as follows:
“2(c) ‘inland waterway’ means any canal, river, lake or any other navigable water as defined under the Inland Vessels Act, 1917.”
Section 2(b) of the Inland Vessels Act, 1917, defines the term ‘inland water’ as:
“i. Any canal, river, lake or other navigable water within a State;
ii. any area of any tidal water deemed to be the inland water as defined by the Central Government under Section 70; or
iii. waters declared by the Central Government to be smooth and partially smooth waters under clause (41) Section 3 of the Merchant Shipping Act, 1958.”
One of the functions of the Inland Waterways Authority of India (IWAI) constituted under the Inland Waterways Authority of India Act, 1985 is to establish and maintain pilotage on national waterways.
Under the National Waterway, Safety of Navigation and Shipping Regulations, 2002, the competent officer appointed by the authority to be in charge of a section of the national waterway for its development, management and maintenance is required to:
A number of central and state agencies and stakeholders play a role in the regulation, operation and sustenance of inland waterways in India.
Among them is IWAI, as well as other operators, port authorities, transport development agencies and customers.
IWAI has the mandate to provide a safe and efficient mode of transport through inland navigation.
A shipowner may recover damages against the authority arising out of marine accidents in the waterways if the accident is caused due to the wrongful act, neglect or default on the part of the authority, or if the third party involved in the accident is an agent of the authority.
Section 32 of the Inland Vessels Act, 1917 lays down the procedure to be followed in the event of any marine accident. The master of the mechanically propelled vessel so involved in any accident or casualty is expected to give notice of the wreck, abandonment, damage, casualty or loss to the officer in charge of the nearest police station.
Once the authorities (inspectors) have been made aware of any such marine accident, an investigation may be conducted.
Under the Inland Vessels Act, 1917, reports of casualties are to be made to the nearest police station if:
The act also gives powers to the state government to direct investigations into causes of explosions on mechanically propelled vessels.
Generally, the master of the vessel is immediately required to report a casualty to the nearest police station.
The state government, on being satisfied that it is necessary or expedient to have a formal investigation into the facts of any case reported, may appoint a special court to make the investigation or direct any principal court of ordinary criminal jurisdiction or the court of any district magistrate to make the investigation.
The special court appointed by the state government consists of four persons, one of whom must be conversant with maritime affairs or with the navigation of inland vessels and another conversant with either maritime or mercantile affairs, or with the navigation of inland vessels. The investigating court may also appoint assessors for the purpose of investigation.
On a completion of the investigation, the court submits a full report of its conclusions to the state government, together with the evidence recorded and the written opinion of any assessor.
A shipowner, through the master of the vessel, can make a claim with IWAI to recover any damages suffered due to the negligence of the authorities, but subject to limitations where the authority is not liable.
There is no prescribed time period for filing an administrative claim against IWAI, in which case the general law of limitation will apply.
Types of damages are not classified under the Inland Waterways Authority of India Act, 1985.
Damages cannot be recovered from the authority for anything done or intended to be done in good faith, or for any damage caused or likely to be caused by anything done in good faith under the act or rules or regulations.
The authority, under the Inland Waterway Authority of India Act, 1985, is not responsible to provide for relief measures necessitated by floods or by breaches and failures of works. No claim would lie against the authority in this regard.
There is no specific procedure for filing a judicial claim against the given authority.
There is no prescribed time period for filing a judicial claim against IWAI, in which case the general law of limitation would apply. Under Section 113 of the Limitation Act, 1963, the time period for filing a suit for which there is no prescribed limitation, is three years from the date on which the right to sue accrues.
Under the Inland Waterways Authority of India Act, 1985, Section 11(e) states that all suits and other legal proceedings with respect to any matter in relation to IWAI, which having been instituted by or against the central government are pending, or which have yet to be instituted, shall be instituted against IWAI now, instead of against the central government in the capacity of the Union of India.
There is no statutory court with exclusive jurisdiction to hear and adjudicate claims against IWAI. Claims will be adjudicated upon by the court having relevant territorial, pecuniary and, if required, maritime jurisdiction.